Noel Watson

Alignment in Cross-Functional and Cross-Firm Supply Chain Planning

In this paper, we seek to use quantitative models to help appreciate the behavioral processes associated with successful cross-functional and cross-firm alignment in supply/demand planning. We model the interaction between a sales and a manufacturing function within a firm, or between an upstream and downstream firm. We claim that misalignment is costly both to the involved functions/firms and to the rest of the organization or supply chain, and focus the paper on studying the circumstances under which alignment will or will not happen. Using game theory, we find that, although misaligned economic incentives can play a role in explaining misalignment of planning behaviors, there is another important issue to consider: in our setting, the key factor that determines whether two functions or firms can align their planning is how much each party knows about the other’s beliefs about demand. Thus, in this paper’s setting, improved communication can induce alignment even if no economic incentives are changed. While consistent with the predominant view in organizational behavior (OB), this is a fundamental departure from the extant operations management (OM) literature.