Jan C. Fransoo, Philip G. Moscoso, Toni Waefler, Dieter Fischer, Antti Tenhiälä

There is no doubt that planning through a hierarchical structure has significant advantages, such as breaking a complex problem into more easily solvable parts or enabling lower levels to respond more quickly to problems. However, hierarchical organization poses two major problems. First, while one or more areas may find local ways to improve planning and production, the net effect on the whole organization may be sub-optimal or entirely negative. A second problem is that different levels of a company may have incompatible objectives, which leads to inconsistent planning decisions. In this case, different levels can cancel out each other’s adjustments, wasting resources and creating uncertain outcomes.

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