Supply Chain management involves choosing between options that can help an organization maximize its profits in the long term. When making these decisions, on many occasions, we immediately enter into conflicts and priorities found between 2 functions or areas of a company .

In this article we tell you 5 conflicts or tensions that are so common within an organization that any professional in the Supply Area needs to understand and how to handle them appropriately.

Table of conflicts and possible solutions

In this table we summarize the conflicts and their possible solutions:

1. Sales Vs Operations

Conflict: Sales people usually say they can’t sell a product they don’t have. In this way, commercial teams want to have enough inventory to meet possible demand. For their part, the operations and logistics teams have the responsibility of generating savings in the production , movements, delivery and storage of products. These areas aim to keep costs low and have only what is strictly necessary.  

Solution: Sales and operations planning (S&OP). What this can generate is that the different teams coordinate their goals and objectives. S&OP usually begins with planning by the sales team over a specific horizon. This first estimate is usually loose and the operations team must evaluate the restrictions and/or investments to adjust said estimate. It is an iterative process, in which the projections are adjusted to the needs and limitations that exist. More experienced personnel are generally involved to understand opportunity costs that are in line with corporate strategy.

2. Internal Customer Vs Suppliers

Conflict: If the company surprises a supplier with a fairly large order, the order is likely to create problems and additional costs for the supplier. However, if your supplier has a good idea of ​​what is going to be purchased and when it is going to be purchased, the supplier/contractor can meet all your needs in advance and manage its own inventory and logistics with lower costs. In other words, both the internal customer and the supplier win when collaboration and information sharing occur in real time.

Solution: One way to solve it is through mutual aid in a process called: collaborative planning, projection and replacement (CPFR). In the CPFR process, companies share information about how much internal customers are expected to purchase and how much inventory suppliers have, so that they can mutually achieve high levels of service with less inventory.

3. Engineering Vs Procurement

Conflict: Engineering teams are always working on innovating, making changes and improving products. For these innovations to work and be maintained over time, the relationship with their suppliers must be flexible and collaborative, but this flexibility and time invested in understanding the needs of engineers have a cost . Generally, the suppliers that are best at innovation and collaboration are also the most expensive. For its part, the Procurement team is seeking to obtain the minimum necessary specifications at the best price. The best prices from suppliers generally come from lower quality products, with standardized productions. This tension is quite common.

Solution: The best way to manage this tension is to create cross-functional, multidisciplinary product teams. Involving procurement teams during the product design portion can ensure that costs are being considered at every stage of the product life cycle. Likewise, involving the engineering team throughout the sourcing process can direct efforts to consider the best cost-efficient options that align with the needs of the company and ultimately its customers.

4. Inventories Vs Operations

Conflict: Production operations focus on maximizing the amount of product they can finish over a time horizon. Sometimes, these production processes must be interrupted on a scheduled basis due to personnel changes, maintenance, or changes to the production line. Unplanned disruptions can happen for other reasons: hacks, strikes, regulatory changes, and drastic changes in supply. One way to prevent it is to have excess inventory – a measure adopted by many companies during the Pandemic.

Solution: Lean production (lean manufacturing) using the Kanban replenishment method, where a new order is generated automatically when certain criteria are defined. This process allows for an orderly step-by-step flow of inventory.

5. Procurement Vs Logistics

Conflict: Procurement teams look for different techniques and strategies to obtain the same materials at a lower cost. The 2 traditional ways to reduce costs are: a) buy large quantities/higher volume or b) buy from suppliers in low-cost regions. These 2 options generally result in increased logistics costs.

Solution: The best way to balance procurement and logistics priorities is to use the total cost of ownership approach (explained in a previous blog). This ensures that all cost elements in the supply chain are being evaluated. So, for example, you may find that a more expensive but closer supplier who can deliver in smaller batches with lower transportation costs may be cheaper than a supplier with better prices in a distant location that will incur additional costs in transportation and storage.

Based on book: Supply Chain Management. Daniel Stanton. Chapter 3 . “Evaluating your Supply Chain Strategy” .