Successful internal collaboration occurs when sales, marketing, and operations find a way to align and focus on serving the customer in a way that maximizes economic profit. Each function in the firm plays a critical role in a successful supply chain.
Are All Firms Cursed by Functional Silos?
Functional silos exist in every firm. They are not necessarily bad, in that they serve as a foundation to build deep process expertise, as well as a vehicle to establish firm accountability. The problem occurs when they become barriers to supply chain excellence. In fact, the important point for building a supply chain excellence strategy is to understand how impermeable the functional silos can be to a smooth operating supply chain. To illustrate, at the university, we offer a Supply Chain Audit service which involves extensive analysis of company data, followed by many interviews inside the firm as well interviews with customers and suppliers. Then, the audit compares the findings to a database of best practices consisting of hundreds of companies. The eight most recent supply chain audits in our database included:
- A major automotive manufacturer
- A major defense contractor
- A leading cosmetics firm
- An automotive parts manufacturer
- A pet supplies maker
- An apparel maker
- A large tire producer
- An industrial pump supplier
Company size in this sample ranged from $100 million in annual sales to over $30 billion. Although the firms audited were tremendously diverse and profitable, they all suffered from functional silo problems ranging from moderate to severe. As one frustrated executive said to us, “How can you manage horizontally when you are organized vertically?” The supply chain process is the ultimate horizontal process with links stretching from suppliers across the firm to customers. Even within the firm, the interfaces require a daunting degree of coordination from product design to marketing to procurement to manufacturing to logistics to sales, enabled by finance and IT.
The CEO is at the Eye of the Storm
Only the CEO can make sure all functions in the company are on the same page. The supply chain leader must help the CEO and the executive team understand that if they want to move toward a world class supply chain capability, all areas of the company need to be rowing in the same direction with the same cadence. This takes an intense dedicated effort to bridge the inevitable gulf between the operations and the revenue generation sides of the company. The CEO must take on the burden of cross-functional alignment, to avoid the curse of functional silo and its crippling impact on the supply chain.
In a consumer products firm we audited, the CEO made a valiant attempt to overcome entrenched functional silos by eliminating all offices! He literally set up his own work area as a desk in the middle of a large open bay. He could stand up and see his VPs scattered around the room. But still the problem persisted. As long as misaligned objectives drove his V.P.’s compensation, the location of their desks of course really didn’t matter.
At a hard goods company, the senior executive team tried to address the functional silo problem by creating a cross functional business team, called the Operations Management Team (Ops Team). The team consisted of director level members from each function. They met weekly to make the tactical supply and demand management decisions required to guide the firm throughout the year. Each member of the team held a big stake in its successful performance. Forty percent of their individual rating on an overall evaluation depended on the performance of the Ops Team in delivering cost reduction, inventory reduction, and product availability improvement. In our work with many firms, we rarely see this much motivation to align across functions. In spite of that, the underlying disease still persisted. As one team member observed, “When the going got tough, the tough got functional.” In other words, any conflict inevitably drove the players back to their functional sanctuaries.
In our database of best practices developed though extensive analysis from audits and projects across hundreds of firms, we have identified a number of approaches that are working. In this journey, we find that leading companies start at the beginning, with the initial design of their products.