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SUPPLY CHAIN PLANNING

ORGANIZATIONS

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Supply Chain Planning Organizations

By Sujit Singh

The Organizational Lay of the Land

In most manufacturing organizations, there are two ‘line’ organizations: Sales and Operations. This is

easy to see because both these organizations have a direct impact on the bottom line. Everyone in the

business implicitly understands the importance of these two organizations: Poor sales or poor

operations can both spell disaster. As a result, both these organizations hold a lot of power in the

organizations. This is further exacerbated by the fact that the very top level of management comes out

of one of these two organizations. (A lot of CEOs are either from sales or operations). A lot of time and

effort is spent on these organizations and helping to support them. Usually, these two organizations

have conflicts that are inherent in the way they are set up. For example, sales would like to be able to

sell what they can when they can. Their metrics are mostly customer and revenue focused. Operations,

on the other hand, would like to work towards higher efficiency (which usually means long

uninterrupted runs of same or similar products) and lower costs. Their metrics are mostly focused on

the costs and the efficient use of assets. These two goals are very often in conflict. The following

picture shows why it is not easy to develop mutual trust between these two organizations.

Almost all other functions in businesses (traditionally) perform a supporting role to these

organizations. Examples could be HR, Legal, Finance, IT, and Supply Chain. Within these ‘staff’

organizations, some have traditionally had more power than others. For example, in all public

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companies, Finance is a very strong organization led by the CFO. IT has steadily risen to gain more

importance, and new positions like CIO and CTO have been created as a result of increasing

acceptance of IT as a differentiator in the way of doing business. This has especially picked up steam

since the e-commerce laden 1990s.

The Special Case of Supply Chain Planning Organizations

Supply Chain planning organizations that traditionally deal with demand and supply planning have a

unique position among all the other staff organizations. As they deal with future uncertain data, theirs

can be a difficult role to understand. The fact that all plans are often different from reality (in varying

degrees) does not help their case either. But the thing that is unique about supply chain planning

organizations is their role of trying to balance the two powerful line organizations (sales and

operations) and to get them to work harmoniously towards the same goal. This puts them in the

unenviable position of trying to control two powerful forces (with conflicting goals) at the same time.

It is helpful to understand this with respect to a symphony orchestra. When it is going well, no one

notices the mannerisms of the conductor; everyone seems to melt into the music. But when it is not

going well, everyone notices only the conductor and blames him or her. A Supply Chain Planning

organization is similar in the sense that when it is able to do its job well, it becomes invisible. On the

other hand, when it is not so successful, it gets all the blame.

Common Supply Chain Organization Structures

Usually, supply chain organizations exhibit stages of evolution depending on the life cycle of the

business, maturity of the organization, nature of the business, etc. For example, it is very difficult for a

very profitable (high margin) business to have a very mature supply chain organization because

normally the money is made by continuously innovating and not by being streamlined and optimized

on the processes.

The following could be described as the different stages of evolution on supply chain organizations:

1. No Supply Chain Planning Organization: This is usually restricted to very small businesses

that can do their planning in the head or on a sheet of paper. Even relatively small companies

can no longer do this because most markets are becoming demand driven.

2. Group Demand Planning under Sales and Supply Planning under Operations: This is by far

the most common supply chain organization setup for companies of different sizes and

complexity. This structure is not very successful as this is similar to having the fox guard the hen

house. Demand planners reporting under sales will aim to forecast based on sales metrics.

Supply Planners that report through operations will have the best interests of the plants at heart

and will plan uninterrupted runs of materials resulting in more inventory than really needed.

This structure also guarantees a constant friction between the demand planning and supply

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planning functions (which should really be part of the same supply chain group). The following

diagram shows this type of organization:

3. Entire Supply Chain Organization (Both Demand and Supply Planning) Report through

the Operations: This setup is slightly better than the one on the previous page in that it at least

keeps the entire SC organization together. However, it still has drawbacks in that this

organization tends to become sympathetic to the operations metrics and usually shortchanges

the commercial or sales organization. The following diagram shows this setup:

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4. The Cadillac Version-Supply Chain Gets a Full Vote at the Table: This type of organization is

where there is usually a VP of Supply Chain (or equivalent) and he or she gets an equal vote (or

almost equal vote) with the VP-Sales and VP-Operations when it comes time for decision

making on future plans. Both the demand planning and supply planning team report through

this VP. This always results in better decision making because of the lack of conflicting metrics

and interests. An organization with this type of structure usually treats supply chain as a

competitive advantage and uses the planning to make money for the business. The following

diagram shows this setup:

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Planning Across Different Horizons

Different companies take different approaches when it comes to different planning horizons. A rule of

thumb is that if all the assumptions and outputs are the same (or similar), then the same team should

do the planning across horizons.

1. If the demand planning/forecasting function reports through VP of Supply Chain, how is

sales input incorporated?

The demand planner or planners coordinate inputs from multiple sources. Statistical forecasts as

well as input from sales reps, sales management, marketing, and other parties knowledgeable

about marketplace changes is recorded on an exception basis where real and known changes in

demand are involved, or where the demand planner has identified items requiring particular

attention. The demand planner is responsible for consolidating multiple inputs into a consistent,

“reality checked” whole.

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2. Why should day-to-day schedulers be separated from this structure?

What is described here is a supply chain planning organization. Day-to-day scheduling, like

order taking or manufacturing, is an execution function. However, metrics and policies must be

in place to ensure that the schedules adhere to the overall plans.

3. Why is this structure more likely than any other to make money for the business

The goal of a supply chain planning team is to “optimize the whole, not the parts.” Their

objective is to make the best decisions for the corporate bottom line, in keeping with the

business’ strategic direction laid out for them. The supply chain planning organization is not

distracted from this objective by competing goals. Note: Goals and Metrics for both the sales

and the operations branches of the business also need to be modified to move toward the

common goal to allow the supply chain organization to be fully successful.

About the Author: Sujit Singh, CFPIM, CSCP, chief operating officer of Arkieva, is responsible for

managing the delivery of software and implementation services, customer relationships, and the day-

to-day operations of the corporation.

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