At a California-based computer manufacturer, the distribution centers in Europe and Asia receive supplies from the main distribution center in the United States. To the U.S. distribution center, the European and Asian distribution centers are internal customers, and they often receive lower priority than U.S. external customers. But these other distribution centers are serving external customers, too. Somebody has to pay for the poor service to overseas distribution centers: the distribution centers, in the form of increased buffer stocks, or their customers, in the form of unreliable delivery.
Discriminating against internal customers has a profound impact on the overall supply chain. Often, the purchasing managers of the receiving entities spend a lot of time jockeying with the supplying division’s distribution manager to improve their priorities in the system. This effort adds no value; it only increases product cost.
Pitfall 8: Poor Coordination
If customer orders consist of multiple items that are supplied by different divisions, and if customers demand receipt of all items at the same time, the company will use a merging center. The products will be shipped to the customer as soon as they all arrive. Obviously, tight coordination among the supplying divisions is important. It is useful to give the divisions a target date. Unfortunately, generating a target date can take a long time (see Pitfalls 3 and 4), and arbitrarily generated target dates that do not consider existing backlogs in the supplying divisions are not useful at all. As a result, target dates are often ignored. Lack of coordination results in excessive delays, and ultimately, poor customer service. At the same time, inventory builds up at the merging center.