1.5 Functional View of Supply Chain

In a broad sense, everyone in a firm is involved in supply chain activities. They contribute, in one way or another, to the process of planning and executing the manufacturing and delivery of materials and services from suppliers to customers. However, within this broad scope, there are several key roles that are integral to the functioning of the supply chain. In this section, we will highlight a few of these roles.

Purchasing: This function is responsible for procuring the materials and services needed for the firm’s operations. In a manufacturing company like Boeing, the purchasing department would be responsible for acquiring airplane seats from suppliers like Adient. In a service company like Chase Bank, the purchasing function might involve procuring travel services from companies like Frosch.

Operations: This function involves the transformation of inputs into outputs. In a manufacturing context, this could involve the assembly of airplane seats into an aircraft at Boeing. In a service context, it could involve the processing of a loan application at Chase Bank.

Marketing/Sales: This function is responsible for understanding customer needs and preferences, and for promoting and selling the firm’s products or services. At FedEx, for instance, the marketing and sales function might involve identifying customer needs for courier services and promoting FedEx’s offerings to meet those needs.

Accounting/Finance: This function manages the financial resources of the firm, including the cash flow that is a key part of the supply chain. At Amazon, for instance, the accounting and finance function would be responsible for managing the cash flow from customers and to suppliers.

Research and Development: This function is responsible for developing new products or services, or improving existing ones. At FedEx, the research and development function might involve developing new data science and machine learning techniques to optimize the company’s logistics operations.

Human Resources: This function is responsible for managing the firm’s human resources, including hiring, training, and managing personnel. At any of the companies we’ve discussed, the human resources function would play a key role in ensuring that the company has the skilled personnel needed to manage its supply chain effectively.

Engineering: This function is responsible for the design and development of the firm’s products or services. In a manufacturing company like Boeing, the engineering function would be critical to the design and development of new aircraft.

Information Technology: This function supports the other functions by providing the necessary technology and systems. At FedEx, for instance, the IT function would be responsible for developing and maintaining the data science and machine learning systems used to optimize the company’s logistics operations.

Each of these functions plays a critical role in the supply chain, and effective supply chain management involves integrating these functions to optimize the flow of materials, cash, and information.

The importance of understanding supply chains extends beyond those who specialize in supply chain management. Marketing and sales students need to be aware of supply chains to ensure that the right products are available for customers when they need them. Finance and accounting students need to understand supply chains to accurately control costs and book revenues. Management students need to grasp supply chain concepts to ensure that firms can continue to be in business for a long time. In essence, a comprehensive understanding of supply chains is crucial for students from all majors. In the following chapters, we will delve deeper into each of these functions and explore how they contribute to effective supply chain management.

1.5.1 The Silo Effect

In many organizations, it’s common to find that different functions or departments operate in isolation from each other. They focus on their own tasks and objectives, often without a clear understanding of how their actions might impact other parts of the organization. This lack of interdepartmental communication and coordination is referred to as the ‘silo effect’.

For instance, consider a situation where the marketing department of a company launches a promotional campaign without coordinating with the operations department. The campaign is successful and leads to a surge in demand. However, the operations department, unaware of the campaign, is unprepared for this sudden increase in demand and struggles to meet it. This could result in delayed deliveries, dissatisfied customers, and potential loss of business. This is a classic example of the silo effect, where the lack of communication and coordination between departments leads to suboptimal outcomes.

The silo effect can also lead to ‘turf wars’ within organizations, where different departments or functions vie for resources and influence. These internal conflicts can be detrimental to the overall performance of the organization, as they divert attention and resources away from the primary goal of serving the customer.

Mitigating the silo effect requires a concerted effort to improve communication and coordination across different functions. This could involve regular interdepartmental meetings, cross-functional teams, or even job rotation programs that allow employees to gain a broader understanding of the organization. Technology can also play a crucial role in breaking down silos, by providing platforms for information sharing and collaboration.

In the age of supply chain management, it’s essential for executives and managers to see their roles in the broader context of the entire supply chain, rather than just their specific function. They need to understand how their decisions and actions impact other parts of the supply chain and work collaboratively to optimize the entire chain, rather than just their piece of it. This shift in perspective from a functional focus to a supply chain focus is a key aspect of effective supply chain management.

– Pause and Think –