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By: Jim Mayer – September 25, 2012

In order to maintain pace with today’s increased competition, even small organizations are becoming more dependent on suppliers. Outsourcing has become much more than a consequence of competition, and more, organizational choice as suppliers become integral in the financial, operational and administrative performance of their customers’ supply chains.

But the challenge may in fact be more a sea-change in the way companies operate in the U.S. Disappearing like the corner grocery store and the western covered wagon is silo mentality, or more precisely, the “silo effect.” This change is a necessary evolution, but requires the “buy-in” of executive management, or owner operators in smaller companies. As was voiced politically some years ago, and is consequential to high performing companies, it does “take a village.” In this case the village is silo-free internal departments and a smaller number of value-added suppliers offering more than quotes in a collaborative environment.

Silos stand in the way of a greater functionality of today’s companies with a fewer number of suppliers offering more than low prices but also valuable industry intelligence, product development support, inventory management tools, advance logistics capabilities, demand planning/forecasting, supply chain optimization, and quality control, to name several. These value-added tools and processes don’t harm internal departments, they augment them. For there to be a bright future for U.S. manufacturing we should learn from the silos of our past.

The phrase “silo effect” has become popular in business and especially in manufacturing during the late 20th century. It commonly refers to a lack of open communication and common goals between departments in an organization. This “silo effect” gets its name from the farm storage silo. Each silo is designated for one grain or specific product. To a manufacturing executive, a lack of communication and “silo thinking” causes departmental breakdowns and a lack of free-flowing ideas from other departments. In manufacturing the interests of departments like purchasing, engineering or accounting get overly invested in their own presence, as opposed to the overall objectives of the company’s business plan.

It therefore becomes incumbent upon chief operating officers and their smaller company counterparts, to lop-off the top of fortress silos and bring select suppliers into a greater collaborative process that focuses on individual and group accountability. Indeed, talking about it in isolation is not the way to achieve communications internally between departments or externally with suppliers that are developed toward a goal of shared success.

It is important to address varying definitions of collaboration and supplier development to discern different viewpoints. Though there are similarities between the definitions, each definition covers something that the others do not. According to Partnership Sourcing Ltd., a body created by England’s government and various industries, partnership sourcing is defined as:

 [Where] customers and suppliers develop such a close and long-term relationship that the two work together as partners. It isn’t philanthropy: the aim is to secure the best possible commercial advantage. The principle is that teamwork is better than combat. If the end customer is to be best served, then the parties must work together – and both must win. Partnership sourcing works because both parties have an interest in each other’s success

Monczka, Trent, and Handfield, define collaboration as:

The process by which partners adopt a high level of purposeful cooperation to maintain a trading relationship over time. The relationship is bilateral; both parties have the power to shape its nature and future direction over time. Mutual commitment to the future and a balanced power relationship are essential to the process. While collaborative relationships are not devoid of conflict, they include mechanisms for managing it built into the relationship.

 Finally, Krause and Handfield define supplier development as:

 A bilateral effort by both the buying and supplying organizations to jointly improve the supplier’s performance and/or capabilities in one or more of the following areas: cost, quality, delivery, time-to-market, technology, environmental responsibility, and managerial capability, and financial viability.

 The importance of developing relationships with collaborative suppliers has risen within the past three decades in the United States. Nowhere else is this more apparent than in the auto industry. The Japanese have made impressive strides by chipping away at “the Big Three’s” market share starting back in the 1970s and resulting in all but Ford’s collapse in 2008.

Spurred by this competition, domestic automobile producers have begun to understand the importance of integrating suppliers into their networks and leveraging this into a competitive advantage.

But for supplier development and collaborations to be most effective, it takes that village the executive and senior manager foster that begins with lopping the top off internal silos and the mentality that leads to organizational inefficiencies and dysfunction.

About the author

Jim Mayer is a director at Itasca, Illinois based M-Wave International, LLC, and managing member of DiversiCorp LLC. He has been both a management consultant and “C” level executive for more than 25 years. Mayer has written in numerous publications during the 80’s and 90’s, and taught new ideas in vendor management, supply chain finance, asset based lending and turnaround since 1985. See: http://www.linkedin.com/pub/jim-mayer/5/2a/34b

Reference links:

Bloomberg Businessweek

http://www.businessweek.com/managing/content/feb2010/ca2010025_358633.htm

Enterra Insights

http://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2010/03/breaking-down-silos.html

http://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2010/01/siloed-thinking-can-prove-devastating.html

E-Myth Blog

http://www.e-myth.com/cs/user/print/post/the-danger-of-silos-in-your-business

Investopedia

http://www.investopedia.com/terms/s/silo-mentality.asp#axzz26qnfItN7

ITBusinessEdge

http://www.itbusinessedge.com/cm/blogs/lawson/business-silos-barrier-to-business-process-management-bpm/?cs=50488

Fast Company

http://www.fastcompany.com/1839317/build-your-business-smash-your-silos

 

 

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