How to break organizational silos in the supply chain

We live in an increasingly connected world, where data exchange and collaboration are at the base of well-established processes. Looking at this in the supply chain universe, this issue triples in importance. It is not possible for a company to have positive results without good communication between the areas. But it happens and it has a name: organizational silos.

What are organizational silos?1

The organizational silo is a phenomenon that happens when company departments work in a disconnected manner, in silos, without exchanging information and sharing projects, for example. In other words, you can say that in companies that work like this, teams are not looking at the whole, but just their department.

The primary component of organizational silos is lack of communication. One does not know what the other is doing, even if, to a greater or lesser degree, there is an interdependence. Projects, for example, are conducted without synergy and fail to reach their full potential.

Think of marketing acting without interaction with the sales operation. Demand generation must be close to those who actually talk to prospects, to receive insights and gather elements, and thus be increasingly assertive in communications and campaigns.

Another aspect of silos is the fact that companies use systems that do not connect nor are they able to enable a systemic and general view of data. This reality fosters the formation of silos, as it makes the exchange of information even more difficult.

In large part, this problem is related to organizational culture. As much as companies encourage and provide structure for connected work, there is still a lot of resistance inside teams to break silos.

Organizational silos in the supply chain

Speaking of generating demand and meeting the needs of customers and consumers, we focus on the supply chain, a very delicate item when talking about organizational silos. Reason being, we are talking about the area responsible for placing the right product, in the right place and at the right time.

In the supply chain, synergy among areas is critical. Everyone must be on the same page. A great example is the planning and demand process, which will guide the operation of companies, for production, as well as commercial, financial and other activities.

When areas do not exchange data and perform their actions in a disconnected way, there is a great chance of losses. An example occurs when the commercial area makes a sale without knowing if production will be able to deliver. If this happens, there are many negative consequences, such as the risk for delivery delays or errors, which lead to damaging the company image, the need to work overtime, generating additional costs and reduced margin or financial loss, among others issues.

How to break organizational silos in the supply chain

A McKinsey study of the elements of success in supply chain organizations identified that one of the key factors is end-to-end coordination in the planning process. Companies with the best EBTIDA performance are those that “invest more in structure, roles and formal processes to coordinate and share knowledge among units, functions and locations”.

So, it is clear that the company’s areas must be aligned, especially when it comes to demand, planning it together based on data, and assertively applying a Sales and Operation Planning (S&OP) process.

S&OP is how company areas collaborate to reach a consensus, thus, working in the same direction. Based on a statistical forecast of demand, using available data, the different areas begin to talk about the same outlook.

In other words, the departments have a better idea of what the demand might be and from that point, they begin to debate to adjust this number until reaching a consensus. Once this is done, they conduct their own planning and run their operations knowing what other areas are expecting. Consequently, the commercial area will not sell more than actual delivery possibilities.

Another way to break organizational silos is through consistent data analysis, where all areas can have access to information. It’s not efficient when just one area consumes the data. An example is when we talk about product performance data.

This is information that different sectors can use to base their decisions, such as marketing, sales, and professionals directly involved in the supply chain. And this is an analysis that can be done separately and together, so that everyone can talk and understand what actions can be taken to improve sales for an item, or to expand coverage, in short, to optimize the whole strategy.

Breaking the silos between supply chain links

If it is true that companies need to promote greater integration among different areas, it is also a fact that the same must happen when we talk about the other links. Manufacturers, retailers and distributors need to work together to best serve consumers.

Collaboration is the keyword in this context. The manufacturer can no longer just transfer its products to retailers and distributors. It is necessary that suppliers understand the operation of their partners and, more importantly, base their actions on performance data from these companies.

The manufacturer must replenish inventory at partners according to product demand and the inventory position. Otherwise, there is a risk of excess inventory of some products with little turnover and out-of-stock of others that could generate more sales.

Manufacturers need to collaborate with retailers and distributors, using this data to establish strategies together and, as we said, ensure proper inventory levels for everyone, not just those who will move the sales needle once in a while. If the manufacturer implements this, the other links start to sell more, assertively, resulting in a healthier financial status and more positive cash flow, for example.

This is true for retailers and distributors, as they must understand the importance of working with transparency and sharing data in the process described above. We can no longer only think about the old competitive scenario, where companies are afraid that, when conveying information, they are losing strategic ammunition.

The most appropriate strategy will be one implemented together, with the supply chain truly synchronized and working collaboratively, breaking down internal organizational silos and those between the other links.

According to another McKinsey survey with more than 100 large organizations across industries, companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.

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