Silos - Break 'Em Down!

One of the major objectives of supply chain management is to break down the silos that operate within any company. The term silo refers to the silhouetted portrait of a typical manufacturer: smoke-belching chimneys towering over several-stories-tall factories situated near tall office buildings. Every school kid recognizes that picture, and it's become the default icon for every PowerPoint presentation that needs an instantly recognizable image of a production facility. Unfortunately, it's not just the silo image that lingers in the public consciousness—it's the entire silo mentality that supply chain proponents keep trying to break down, with varying degrees of success.

Let's face it: Taking control of the supply chain and aligning a company's processes so that improvements are regular and long-lasting are very difficult tasks to accomplish. For some companies, though, an even harder task is deciding whether to start the process at all, particularly given the long tradition of "throwing it over the wall" between various production departments. When it comes to aligning manufacturing within a supply chain context, it's not easy being lean.

Today, thanks largely to the historic success of Japanese automaker Toyota and the more recent but equally storied success of American computer maker Dell, textbooks outlining the principles of lean manufacturing sit on the bookshelves of countless executive suites. Yet for all the talk about lean, there's still a pervasive wait-and-see attitude at most of those companies, especially outside of the automotive and high-tech industries. While manufacturers and distributors of all types of products recognize that lean offers a more-or-less direct route to eliminating waste, reducing inventory, and becoming more profitable, wanting those benefits and actually having a plan in place for going after them are two very different things.

Improving efficiencies within a lean environment takes a concerted and coordinated effort to align all facets of the supply chain toward achieving the same goals. And the job is far from done once a company has all its internal oars moving in the same direction; that same process must be replicated throughout the main supply base. Any breakdown in communication with a key supplier will result in those lean inventories getting bloated again in very short order.

The patience that is required for a successful supply chain transformation can evaporate after one bad fiscal quarter, and any kind of company-transforming initiative by definition requires significant expenditures of time, money, labor, and other vital resources. Confronted with "put up or shut up" ultimatums from top management, many supply chain managers are stymied in their attempts to streamline manufacturing operations, even in the face of evidence that such efforts are working for other companies.

There's also the business-as-usual mindset that looks upon supply chain initiatives as mostly a one-time opportunity to reduce costs in a single area, with little or no thought given to a sustained effort throughout all corporate operations.

Nevertheless, companies continue to seek ways to break down the silo mentality for one basic reason: That's what the best manufacturing companies in the world have done. Best-in-class manufacturers have at least this one thing in common: Their cycle times are shorter than their order lead times. What's more, they've figured out how to reduce waste in numerous areas, which allows them to control their costs as they increase capacity and inventory turns. And in supply chain circles, nobody does that better than Dell.

The secret to Dell's success is really no secret at all—the company's direct model works because of a single-minded dedication to its customers, focusing on one customer at a time. Since its founding in 1984, the company has pioneered a make-to-order philosophy within an industry that was traditionally make-to-stock. Rather than sell its personal computers through retailers, Dell decided to customize every PC to the unique specifications of the individual end user. So customers get exactly what they want, while Dell builds PCs that have already been sold.

Strategic Sourcing and Commodity Teams - Part 1 - A "Force Multiplier"

Much has been written lately about companies using Stategic Sourcing, and the term Commodity team is often thrown around as if every one understands the concept. So let's step back a minute and discuss Commodity Teams and how they can be an integral part of a Strategic Sourcing plan within a company. One term that I've often used to describe Commodity teams is a military term, "force multiplier."

According to wikipedia, "Force multiplication, refers to a combination of attributes or advantages which make a given force more effective than another force of comparable size. A force multiplier refers to a factor that dramatically increases (hence "multiplies") the effectiveness of an item or group." Let's face it, the analogy that business is war is apt, but we need to make sure that we take the fight to our competition, not on our suppliers or internal funtional silos.

In 1999, Motorola Network Infrastructure Group's Strategic Sourcing orgainization, then lead by Trevor Munden, instituted commodity teams across a wide range of commodities, and it paid handsome dividends. The teams typically consisted of a Commodity Manager (who had responsibility for the commercial aspects of the supplier relationship), Supplier Development Engineers (who owned the technical relationship with the suppliers), Development Engineers (both Mechanical and Electrical, who represented the interests of the programs that they were assigned to work on), Buyers (who placed purchase orders and expidited shipments), and Supplier Quality Engineers (who owned the quality portion of the supplier interface).

These teams usually brought dozens of years experience to bear, and discussed current suppliers, future technology needs, industry trends, etc. The 1-2 hours spent every two weeks acted as a force multiplier in the regard that it aligned the needs of cost, quality, delivery and technology, and ensured that the team was all rowing in the same direction. When these team meetings aligned the needs of engineering with the needs of the strategic sourcing organization, they discovered lead to two key benefits:

1. Buy-in from all departments involved - this eliminated the perception that "sourcing is forcing us to use XYZ supplier just to save a few bucks," as well as its counterpart, "the engineers just want to use this supplier because they always used them, and the sales rep takes them out to lunch a lot."

2. It presented a consistent message to the suppliers. No longer could a supplier work in secret with engineering to get designed in without being brought to the table at a commodity team meeting. Suppliers benefitted by getting consistent messages regarding schedule, price and design expectations.

More on this later....