Managerial Levers to Achieve Coordination

Having identified obstacles to coordination, we now focus on actions a manager can take to help overcome the obstacles and achieve coordination in the supply chain. The following managerial actions inaease total supply chain profits and moderate information distortion  

Managers can improve coordination within the supply chain by aligning goals and incentives so every participant in supply chain activities works to maximize total supply chain profits. 

ALIGNING INCENTIVES ACROSS FUNCTIONS One key to coordinated decisions within a firm is to ensure that the objective any function uses to evaluate a decision is aligned with the firm s overall objective. All facility, transportation, and inventory decisions should be evaluated based on their effect on profitability or total costs, not functional costs. This helps prevent situations such as a transportation manager making decisions that lower transportation cost but increase overall supply chain costs (see Chapter 14). 

PRICING FOR COORDINATION In many instances, suitable pricing schemes can help coordinate the supply chain. A manufactmer can use lot-size-based quantity discounts to achieve coordination for commodity products if the manufacturer has large fixed costs associated with each lot (see Chapter 11 for a detailed discussion). For products for which a firm has market power, a manufacturer can use two-part tariffs and volume discounts to help achieve coordination (see Chapter 11 for a detailed discussion). Given demand uncertainty, manufactmers can use buyback, revenue-sharing, and quantity flexibility contracts to spur retailers to provide levels of 

Managers can achieve coordination by improving the visibility and accuracy of information available to different stages in the supply chain. 

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