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Three functions
Demand means sales, which works with retailers, and marketing across e-commerce, social, and digital. Supply covers the chain end to end, from raw materials to fulfillment and warehousing. Finance handles forecasting and pricing.
Different temperaments
The two sides attract different personalities. Supply people are driven by accuracy and efficiency: what do we have, where is it, when do we need it, how much is there. Sales people want to go win, and they often outkick their coverage, and supply has to go fix the problems that creates.
Finance sets rules
At Medici, a cross-functional team of all four runs each business unit. Finance defines the rules of the game and ultimately runs the P&L, and the tension between supply and demand stays a healthy one.
Why do sales and operations teams clash?
Sales is rewarded for revenue and operations for accuracy and cost, so each side's goals pull against the other's. In the 1980s, consultant Oliver Wight formalized a monthly routine called sales and operations planning to settle those tensions with one shared plan. Companies run it as a meeting where demand forecasts and supply capacity are reconciled by senior leaders.
How did divisions come to own a P&L?
In the 1920s General Motors under Alfred Sloan organized its car brands as divisions with their own results, judged by return on invested capital. The measure was developed by Donaldson Brown, who came to GM from DuPont's finance department. Headquarters set targets and rules while divisions ran day-to-day operations.
Why do incentives push sales past supply?
Steven Kerr's 1975 article On the Folly of Rewarding A, While Hoping for B described how organizations reward one behavior while hoping for another. If sales is paid on orders won, it will pursue orders whether or not supply can fill them. Kerr's article was published in the Academy of Management Journal.
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