Incentive Obstacles

• When incentives offered to different stages or participants in a supply chain lead to actions that increase variability and reduce total supply chain profits – misalignment of total supply chain objectives and individual objectives
• Local optimization within functions or stages of a supply chain
• Sales force incentives

Information Processing Obstacles.

• When demand information is distorted as it moves between different stages of the supply chain, leading to increased variability in orders within the supply chain
• Forecasting based on orders, not customer demand
• Forecasting demand based on orders magnifies demand fluctuations moving up the supply chain from retailer to manufacturer
• Lack of information sharing

Operational Obstacles.

• Actions taken in the course of placing and filling orders that lead to an increase in variability
• Ordering in large lots (much larger than dictated by demand)
• Large replenishment lead times
• Rationing and shortage gaming

Pricing Obstacles.

• When pricing policies for a product lead to an increase in variability of orders placed
• Lot-size based quantity decisions
• Price fluctuations (resulting in forward buying)

Behavioral Obstacles.

• Problems in learning, often related to communication in the supply chain and how the supply chain is structured
• Each stage of the supply chain views its actions locally and is unable to see the impact of its actions on other stages
• Different stages react to the current local situation rather than trying to identify the root causes
• Based on local analysis, different stages blame each other for the fluctuations, with successive stages becoming enemies rather than partners
• No stage learns from its actions over time because the most significant consequences of the actions of any one stage occur elsewhere, resulting in a vicious cycle of actions and blame
• Lack of trust results in opportunism, duplication of effort, and lack of information sharing.