Breaking down the silo mentality

By Lars Kloch, CEO, SBS Worldwide

We are always told that the key to supply chain excellence is co-operation. But, this needs to go deeper than simply building closer relationships with suppliers, customers and distribution specialists. The first place to look is within your own company.

Most finance directors, CFOs and other senior finance executives believe that the supply chain is a key area to cut costs, according to a survey conducted at The Economist’s 2012 CFO Summit. 

They can see that the capital cost of holding large amounts of stock in various locations is a drain on finances, but keeping inventory levels to a minimum runs the risk of damaging both sales and reputation if you cannot supply what your customer orders.

The question is how to achieve a reduction in supply chain costs without an equivalent reduction in service quality – whether you are delivering to a production line, a retailer’s RDC (regional distribution centre) or to the end-customer’s home.

The first step is to look at the supply chain in its totality – breaking down the silo mentality which exists in many larger corporations, with each director more worried about his/her department’s performance than the overall benefit to the company.

The purchasing department wants to buy in bulk to reduce per piece costs. But the warehouse manager is tasked with reducing inventory and floor space.

The marketing department sources new packaging designs or sizes to attract new customers. But the delivery manager faces greatly increased damage, and therefore returns. Not to mention the potential effect on racking and stacking in the warehouse.

The sales team is delighted to win orders from a whole new range of customers. But the cost of fulfilling maintenance commitments far outweighs any possible profits.

The production manager reduces labour costs by changing shift patterns to cut the use of temporary personnel. Total production may remain the same, but now the schedule no longer meets the deadlines of the lower cost delivery options.

In any company, it can be very difficult for those on the inside to be able to take a truly ‘global’ view. And there is unlikely to be a mechanism for measuring how much one department’s decision can impact throughout the supply chain.

So what is the answer to breaking down the silo mentality?

An obvious question to ask CEOs and FDs is: How do you incentivise your departmental managers? Are you perpetuating or even encouraging the silo mentality by basing performance reviews, bonuses and promotion prospects on a simple bottom line equation?

Are your departmental heads so focussed on meeting the (sometimes competing) targets that you set them, that they – and you – are missing the big picture? Are traditional practices and long-term personal relationships blocking any chance of an objective assessment of what is best for the company as a whole?

I understand that it can be difficult to ask a neutral observer to come in and assess your company. I know how difficult it can be to listen to someone question your long-held beliefs and/or future plans.

But utilising that expertise to help you break down the silo mentality can bring huge savings in your supply chain without compromising service quality and, if it is done right, actually improving that quality and customer satisfaction.

I may be biased, but I believe a company lives and dies on its supply chain. All the production and marketing genius in the world will not make your company grow if you cannot deliver the goods on time and at a price the market is willing to pay.