Content thumbnail Partnering for Performance Part 1

Misaligned incentives in the supply chain An integrated planning model that links finance, sales and operations in a transparent and accountable way helps to overcome some of the misaligned incentives between different parts of the business . Below are some examples of actions that can result in misalignment, along with their unfortunate implications: Action Implication The sales team underestimates demand in forecasts Operations plan for less capacity and, when the real so that it can demonstrate that it has beaten demand hits, they are unable to meet it . its targets . Operations pushes as many products through Inventory builds up, increasing working capital and the supply chain as it can reduce unit cost of reducing visibility and overall efficiency. products manufactured . Sales and marketing maintain a high number of Servicing the product lines, some of which are likely product lines to increase customer choice . to be unprofitable, increases cost and inventory complexity and reduces profitability. Cost-reduction incentives drive procurement to Poor-quality parts cause problems in manufacturing purchase low-cost parts. when they fail . The finance team puts the supply chain under The supply chain reduces production and trims pressure to reduce working capital to improve inventory levels, which leads to stock-outs and poor financial performance. service levels . Partnering for performance Part 1: the CFO and the supply chain 23

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