What is the area of management responsible for the activities necessary to produce goods and services?

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Learning Objectives

• Identify the primary functional areas within a business
• Identify key people and explain the activities within each functional area

Just as different functions in the human body are performed and regulated by different organs, different functions within a business are performed and controlled by different parts of the business.

One of the reasons for separating business operations into functional areas is to allow each to operate within its area of expertise, thus building efficiency and effectiveness across the business as a whole. Functional areas in a business vary according to the nature of the market and the size of the business. For example, manufacturing companies like Nike and Apple have significant Research and Development (R&D) departments in order to stay in the lead in their respective business segments. On the other hand, retail companies may have no R&D functional area per se, but will be heavily invested in Operations areas surrounding Supply Chain Management.

In general, the key functional areas of a business are the following:

• Management
• Operations
• Marketing/Sales
• Finance
• Research and Development

Each of these functional areas is represented in the following organization chart.

Management

The primary role of managers in business is to supervise other people’s performance. Most management activities fall into the following categories:

• Planning: Managers plan by setting long-term goals for the business, as well as short-term strategies needed to execute those goals.
• Organizing: Managers are responsible for organizing the operations of a business in the most efficient way—enabling the business to use its resources effectively.
• Controlling: A large percentage of a manager’s time is spent controlling the activities within the business to ensure that it’s on track to achieve its goals. When people or processes stray from the path, managers are often the first ones to notice and take corrective action.
• Leading: Managers serve as leaders for the organization, in practical as well as symbolic ways. The manager may lead work teams or groups through a new process or the development of a new product. The manager may also be seen as the leader of the organization when it interacts with the community, customers, and suppliers.

Operations

Operations is where inputs, or factors of production, are converted to outputs, which are goods and services. Operations is the heart of a business—providing goods and services in a quantity and of a quality that meets the needs of the customers. Operations controls the supply chain, including procurement and logistics.

Marketing/Sales

Marketing consists of all that a company does to identify customers’ needs and design products and services that meet those needs. The marketing function also includes promoting goods and services, determining how the goods and services will be delivered and developing a pricing strategy to capture market share while remaining competitive. In today’s technology-driven business environment, marketing is also responsible for building and overseeing a company’s Internet presence (e.g., the company website, blogs, social media campaigns, etc.). Today, social media marketing is one of the fastest growing sectors within the marketing function.

The goal of Sales is to close the revenue the company needs in order to operate profitably, especially in B2B businesses. Again, depending on the nature of the market and the company size, Sales functional areas can vary in structure and approach: inside/outside representation, vertical/horizontal focus, direct, etc. Sales works to exploit the leads created by Marketing and activities generated by the sales force itself.

Finance

The Finance function involves planning for, obtaining, and managing a company’s funds. Finance managers plan for both short-term and long-term financial capital needs and analyze the impact that borrowing will have on the financial well-being of the business. A company’s finance department answers questions about how funds should be raised (loans vs. stocks), the long-term cost of borrowing funds, and the implications of financing decisions for the long-term health of the business.

Accounting is a crucial part of the Finance functional area. Accountants provide managers with information needed to make decisions about the allocation of company resources. This area is ultimately responsible for accurately representing the financial transactions of a business to internal and external parties, government agencies, and owners/investors. Financial accountants are primarily responsible for the preparation of financial statements to help entities both inside and outside the organization assess the financial strength of the company. Managerial accountants provide information regarding costs, budgets, asset allocation, and performance appraisal for internal use by management for the purpose of decision-making.

Key People Within Functional Areas

Here is an example of the functional areas of a large technology manufacturing corporation and the key functions and people within.

The Management functional area in most large corporations is led by the Chief Executive Officer (CEO). Depending on company size, there may be a President in position as well.

The Operations functional area is managed by the Chief Operations Officer (COO). In this example, Operations consists of Production, led by a Vice President (VP), a Supply Chain department, and a Procurement area with Director-level people in charge.

The Finance functional area is led by the Chief Financial Officer (CFO), who is one of the most important “C-level” executives. In addition to running Finance and Accounting, the CFO is responsible for reporting company results to the financial community. Finance also contains Human Resources (HR) in many companies and the Legal department as well. It is common for the CFO to have VPs of HR, Accounting, and Legal as direct reports. HR contains functions like employee training, compensation and benefits, and recruiting. Accounting has multiple functions, such as Accounts Payable, Receivable, record-keeping, and cash flow. The Legal department is responsible for contracts, copyrights, and various negotiations on behalf of the company.

The Marketing/Sales functional area is managed by the Chief Revenue Officer (CRO), which is a relatively new addition to C-level executives. The CRO may have a Sales VP and Marketing VP as direct reports, but in some cases, the CRO may act as VP of Sales or Marketing. This functional area may also contain Customer Service (and Support) with a Director-level manager in charge. Marketing has specialized functions, such as communications (press releases), social media, data science analysis, and product marketing. Customer Service is usually responsible for Customer Relationship Management (CRM) and problem resolution and support.

Finally, the Research and Development functional area is the lifeblood of manufacturing businesses. R&D is staffed with scientists, thought leaders, subject matter experts, and industry analysts striving to provide the organization with knowledge and ideas to keep up with, and ahead of, the competition. R&D is led by the Chief Technology Officer (CTO), who manages a Development VP or similar title, depending on what technology products are being produced: semiconductors, athletic footwear, software systems, or dental appliances. In many organizations, the Information Technology area (IT), responsible for providing internal technology tools to the company’s employees, is housed in the R&D organization.

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Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.

• Supply chain management (SCM) is the centralized management of the flow of goods and services and includes all processes that transform raw materials into final products.
• By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster and more efficiently.
• Good supply chain management keeps companies out of the headlines and away from expensive recalls and lawsuits. 
• The five most critical elements of SCM are developing a strategy, sourcing raw materials, production, distribution, and returns.
• A supply chain manager is tasked with controlling and reducing costs and avoiding supply shortages.

Supply chain management (SCM) represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings.

Typically, SCM attempts to centrally control or link the production, shipment, and distribution of a product. By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster. This is done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results from the efforts of various organizations that make up a supply chain. Although supply chains have existed for ages, most companies have only recently paid attention to them as a value-add to their operations.

The supply chain manager tries to minimize shortages and keep costs down. The job is not only about logistics and purchasing inventory. According to Salary.com, supply chain managers “oversee and manage overall supply chain and logistic operations to maximize efficiency and minimize the cost of organization's supply chain."

Productivity and efficiency improvements can go straight to the bottom line of a company. Good supply chain management keeps companies out of the headlines and away from expensive recalls and lawsuits. In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain which consists of the following five parts.

To get the best results from SCM, the process usually begins with planning to match supply with customer and manufacturing demands. Firms must predict what their future needs will be and act accordingly. This relates to raw materials needed during each stage of manufacturing, equipment capacity and limitations, and staffing needs along the SCM process. Large entities often rely on ERP system modules to aggregate information and compile plans.

Efficient SCM processes rely very heavily on strong relationships with suppliers. Sourcing entails working with vendors to supply the raw materials needed throughout the manufacturing process. A company may be able to plan and work with a supplier to source goods in advance. However, different industries will have different sourcing requirements. In general, SCM sourcing includes ensuring:

• the raw materials meet the manufacturing specification needed for the production of goods.
• the prices paid for the goods are in line with market expectations.
• the vendor has the flexibility to deliver emergency materials due to unforeseen events.
• the vendor has a proven record of delivering goods on time and in good quality.

Supply chain management is especially critical when manufacturers are working with perishable goods. When sourcing goods, firms should be mindful of lead time and how well a supplier can comply with those needs.

At the heart of the supply chain management process, the company transforms raw materials by using machinery, labor, or other external forces to make something new. This final product is the ultimate goal of the manufacturing process, though it is not the final stage of supply chain management.

The manufacturing process may be further divided into sub-tasks such as assembly, testing, inspection, or packaging. During the manufacturing process, a firm must be mindful of waste or other controllable factors that may cause deviations from original plans. For example, if a company is using more raw materials than planned and sourced for due to a lack of employee training, the firm must rectify the issue or revisit the earlier stages in SCM.

Once products are made and sales are finalized, a company must get the products into the hands of its customers. The distribution process is often seen as a brand image contributor, as up until this point, the customer has not yet interacted with the product. In strong SCM processes, a company has robust logistic capabilities and delivery channels to ensure timely, safe, and inexpensive delivery of products.

This includes having a backup or diversified distribution methods should one method of transportation temporarily be unusable. For example, how might a company's delivery process be impacted by record snowfall in distribution center areas?

The supply chain management process concludes with support for the product and customer returns. Its bad enough that a customer needs to return a product, and its even worse if its due to an error on the company's part. This return process is often called reverse logistics, and the company must ensure it has the capabilities to receive returned products and correctly assign refunds for returns received. Whether a company is performing a product recall or a customer is simply not satisfied with the product, the transaction with the customer must be remedied.

Many consider customer returns as an interaction between the customer and the company. However, a very important part of customer returns is the intercompany communication to identify defective products, expired products, or non-conforming goods. Without addressing the underlying cause of a customer return, the supply chain management process will have failed, and future returns will likely persist.

A supply chain is the network of individuals, companies, resources, activities, and technologies used to make and sell a product or service. A supply chain starts with the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to the end consumer.

SCM oversees each touchpoint of a company's product or service, from initial creation to the final sale. With so many places along the supply chain that can add value through efficiencies or lose value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a company's bottom line.

Supply chain management does not look the same for all companies. Each business has its own goals, constraints, and strengths that shape what its SCM process looks like. In general, there are often six different primary models a company can adopt to guide its supply chain management processes.

• Continuous Flow Model: One of the more traditional supply chain methods, this model is often best for mature industries. The continuous flow model relies on a manufacturer producing the same good over and over and expecting customer demand will little variation.
• Agile Model: This model is best for companies with unpredictable demand or customer-order products. This model prioritizes flexibility, as a company may have a specific need at any given moment and must be prepared to pivot accordingly.
• Fast Model: This model emphasizes the quick turnover of a product with a short life cycle. Using a fast chain model, a company strives to capitalize on a trend, quickly produce goods, and ensure the product is fully sold before the trend ends.
• Flexible Model: The flexible model works best for companies impacted by seasonality. Some companies may have much higher demand requirements during peak season and low volume requirements in others. A flexible model of supply chain management makes sure production can easily be ramped up or wound down.
• Efficient Model: For companies competing in industries with very tight profit margins, a company may strive to get an advantage by making their supply chain management process the most efficient. This includes utilizing equipment and machinery in the most ideal ways in addition to managing inventory and processing orders most efficiently.
• Custom Model: If any model above doesn't suit a company's needs, it can always turn towards a custom model. This is often the case for highly specialized industries with high technical requirements such as an automobile manufacturer.

Understanding the importance of SCM to its business, Walgreens Boots Alliance Inc. decided to transform its supply chain by investing in technology to streamline the entire process. For several years the company has been investing and revamping its supply chain management process. Walgreens was able to use big data to help improve its forecasting capabilities and better manage the sales and inventory management processes.

This includes the 2019 addition of its first-ever Chief Supply Chain Officer, Colin Nelson. His role is to boost customer satisfaction as the company increases its digital presence. Beyond that, in 2021, it announced it would be offering free two-hour, same-day delivery for 24,000 products in its stores.

Supply chain management is the practice of coordinating the various activities necessary to produce and deliver goods and services to a business’s customers. Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.

Supply chain management is important because it can help achieve several business objectives. For instance, controlling manufacturing processes can improve product quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer brand. At the same time, controls over shipping procedures can improve customer service by avoiding costly shortages or periods of inventory oversupply. Overall, supply chain management provides several opportunities for companies to improve their profit margins and is especially important for companies with large and international operations.

Ethics has become an increasingly important aspect of supply chain management, so much so that a set of principles called supply chain ethics was born. Consumers and investors are invested in how companies produce their products, treat their workforce, and protect the environment. As a result, companies respond by instituting measures to reduce waste, improve working conditions, and lessen the impact on the environment.

Supply chain management has five key elements—planning, sourcing raw materials, manufacturing, delivery, and returns. The planning phase refers to developing an overall strategy for the supply chain, while the other four elements specialize in the key requirements for executing that plan. Companies must develop expertise in all five elements to have an efficient supply chain and avoid expensive bottlenecks.

Place is the marketing mix element that deals with supply chain management as it involves the processes that take goods and services from their raw beginnings to the ultimate destination—the customer.