Incentive alignment in a chain.

One of the hidden challenges in most transformations of a supply chain to a demand chain, is the alignment of the incentives through the chain.

For a demand chain to be successful, each point in the chain must see its own best interests best served by serving the best interests of the entire chain.

In a normal supply chain, each point sets out to maximise its own position, with little regard to those “upstream or downstream” of them, leading to gaming, which almost always produces sub-optimal outcomes.

Aligning incentives provides the opportunity to maximise the productivity of the resources tied up in the chain for all concerned.

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StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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2 Responses to Incentive alignment in a chain.

  1. Allen says:

    I approached the differences between Supply, value, and demad chains in an entry on April 14, to some degree they are simply the differences of the place from which you are looking, and the baggage you bring to the view.
    A supply chain typically just recognises the physical transformation, prices, and logistics in the chain, with no regard to the “softer stuff”. A demand chain starts with the consumer, and works backwards identifying the elements that add value, and actions by which value can be maximised. Therefore, relationships, collaborative improvement initiatives, information feedback loops and the like become the drivers of value.
    It is overly simplistic just to say it is just a view from the consumer, as that misses the complications, but that is what it is, at least in m y view.

    Allen Roberts

  2. Jan Husdal says:

    Interesting point. What puzzles me though are the terms ‘supply’ chain and ‘demand’ chain…where is the difference between the two? That is somewhat unclear to me. Or is it just the point of view – upstream versus downstream the chain?

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