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Business Functions and Business Processes
materials on production plans, expected shipments, delivery lead times, and existing
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inventory levels. With accurate data about required production levels, raw material and
packaging can be ordered as needed, and inventory levels can be kept low, saving money.
On the other hand, if data are inaccurate or not current, manufacturing may run out of
raw material or packaging; such a shortfall is called a stockout. Shortages of this type can
shut down production and cause the company to miss delivery dates. To avoid stockouts,
management might choose to carry extra raw material and packaging, known as safety
stock, which can result in an overinvestment in inventory. If certain time-sensitive goods
are held too long, they can spoil and will have to be destroyed rather than sold for profit.
The accuracy of the forecast determines the amount of safety stock required to reduce the
risk of a stockout to an acceptable level. The less accurate the forecast, the more safety
stock is required. Accurate forecasting and production planning can reduce the need for
extra inventory and manufacturing capacity. In addition, Supply Chain Management can
share its planning information with the company’s suppliers so they can plan their
operations more efficiently, which should allow the suppliers to reduce the price they
charge the company for their products.
Supply Chain Management records can provide the data needed by Accounting and
Finance to determine how much of each resource (materials, labor, supplies, and
overhead) was used to make completed products in inventory.
Supply Chain Management data can support the Marketing and Sales function by
providing information about what has been produced and shipped. For example, online
retailers such as Amazon provide detailed information on customer orders through their
Web sites, and some send automated emails to notify customers when their orders have
shipped. Shipping companies, such as UPS and FedEx, provide online shipment-tracking
information. By entering a tracking number, the customer can see each step of the shipping
process by noting where the package’s bar code was scanned. Domino’s Pizza allows
customers who order through their Web site to track the progress of their pizza order—
from preparation to baking to delivery. Thus, accurate and timely production information
supports the sales process and can increase customer satisfaction. In fact, Amazon ranked
number one in the Temkin Group’s 2011 survey of customer experience. Two of the three
survey components relate to business process: functional experience (how well the
customer was able to do what they wanted to do) and accessiblility experience (how easy it
was to interact with the company). Performing well in such a survey requires a smooth
integration of the Marketing and Sales and Supply Chain Management processes.
Supply Chain Management also interacts with Human Resources. For instance, Supply
Chain Management passes hiring information to Human Resources, and Human Resources
informs Supply Chain Management of the company’s layoff and recall policy, which might
pertain to workers in the plant.
To summarize, inputs for Supply Chain Management could include the following:
• Product sales data
• Production plans
• Inventory levels
• Layoff and recall company policy
Outputs for Supply Chain Management could include the following:
• Raw material orders
• Packaging orders

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