Discuss the importance of collaboration within a supply chain when performing aggregate planning

Question

What will be an ideal response?

Answer 1

Answer: Supply chains can influence demand by using pricing and other forms of promotion. Marketing and sales often make the promotion and pricing decisions, and they typically make them with the objective of maximizing revenue. However, changing the demand pattern can change the cost the company incurs to meet that demand. Thus, pricing decisions based only on revenue considerations often result in a decrease in overall profitability. The same is true when thinking of the supply chain. The retailer sets the price and runs promotions to generate demand. This is regularly done without taking into account the impact on the rest of the supply chain. Therefore, the combination of pricing and aggregate planning (both demand and supply management) can be used to maximize supply chain profitability.

When performing aggregate planning, the goal of all firms in the supply chain should be to maximize supply chain profits because this outcome leaves them more to divide with each other. For profit maximization to take place, companies need to devise a way to collaborate and, just as important, determine a way to split the supply chain profits. Determining how these profits will be allocated to different members of the supply chain is a key to successful collaboration.