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Conflicts in Traditional Systems

The document discusses conflicts that traditionally arose between departments in companies due to each department optimizing their own objectives without considering the overall company goals. For example, the transportation department would ship in large quantities to reduce shipping costs per unit, but this increased inventory costs. The objectives of marketing, production, and finance also conflicted as marketing aimed to maximize customer service through high inventory and quick production changes, while finance wanted to reduce costs by decreasing inventory and production runs, and production aimed to reduce costs through long production runs. One way to resolve these conflicts is through close coordination of supply, production, and distribution functions within a single integrated logistics organization.

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Uro, Ma. Eleanor A.
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86 views2 pages

Conflicts in Traditional Systems

The document discusses conflicts that traditionally arose between departments in companies due to each department optimizing their own objectives without considering the overall company goals. For example, the transportation department would ship in large quantities to reduce shipping costs per unit, but this increased inventory costs. The objectives of marketing, production, and finance also conflicted as marketing aimed to maximize customer service through high inventory and quick production changes, while finance wanted to reduce costs by decreasing inventory and production runs, and production aimed to reduce costs through long production runs. One way to resolve these conflicts is through close coordination of supply, production, and distribution functions within a single integrated logistics organization.

Uploaded by

Uro, Ma. Eleanor A.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Conflicts in Traditional Systems

In the past, supply, production, and distribution systems were organized into separate
functions that reported to different departments of a company. Often policies and practices of the
different departments maximized departmental objectives without considering the effect they
would have on other parts of the system. Because the three systems are interrelated, conflicts
often occurred. Although each system made decisions that were best for itself, overall company
objectives suffered. For example, the transportation department would ship in the largest
quantities possible so it could minimize per-unit shipping costs. However, this increased
inventory and resulted in higher inventory-carrying costs.
To get the most profit, a company must have at least four main objectives:
1. Provide best customer service.
2. Provide lowest production costs.
3. Provide lowest inventory investment.
4. Provide lowest distribution costs.

These objectives create conflict among the marketing, production, and finance departments
because each has different responsibilities in these areas. Marketing’s objective is to maintain
and increase revenue; therefore, it must provide the best customer service possible. There are
several ways of doing this:
• Maintain high inventories so goods are always available for the customer.
• Interrupt production runs so that a non-inventoried item can be manufactured quickly.
• Create an extensive and costly distribution system so goods can be shipped to the
customer rapidly.

Finance must keep investment and costs low. This can be done in the following ways:
• Reduce inventory so inventory investment is at a minimum.
• Decrease the number of plants and warehouses.
• Produce large quantities using long production runs.
• Manufacture only to customer order.
Production must keep its operating costs as low as possible. This can be done in the following
ways:
• Make long production runs of relatively few products. Fewer changeovers will be needed
and specialized
equipment can be used, thus reducing the cost of making the product.
• Maintain high inventories of raw materials and work-in-process so production is not
disrupted by shortages.
These conflicts among marketing, finance, and production center on customer service, disruption
of production flow, and inventory levels. Figure 1.3 shows this relationship.

Today the concepts of JIT manufacturing stress the need to supply customers with what
they want when they want it and to keep inventories at a minimum. These objectives put further
stress on the relationship among production, marketing, and finance.
One important way to resolve these conflicting objectives is to provide close coordination
of the supply, production, and distribution functions. The problem is to balance conflicting
objectives to minimize the total of all the costs involved and maximize customer service
consistent with the goals of the organization. This requires some type of integrated materials
management or logistics organization that is responsible for supply, production, and distribution.
Rather than having the planning and control of these functions spread among marketing,
production, and distribution,
they should occur in a single area of responsibility.

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