Is silo thinking holding back the next stage in global supply chain growth?

silo thinkingDespite the fact that the latest software capabilities can now provide insights into economies of scale in end-to-end global supply chain management, most businesses are not yet prepared to embrace it.

In a recent interview with Dr. Jeff Karrenbauer, the co-founder and president of Insight (a top supply chain consultancy), Dr. Karrenbauer, who is a 40 year veteran of the global supply chain industry, explained his frustration and expounded on what businesses are missing out on to Fortune Magazine.

End-to-end global supply chain modeling now a possibility

End–to-end global supply chain modeling can be used to track down better efficiencies in sourcing, scheduling and logistics, than was possible with unaided human brain-power alone. Dr. Karrenbauer explained that with modern software technology, businesses can now solve larger, more complicated problems, problems that we had no way of addressing software-wise about a decade ago.

With the availability of improved data collection, faster and more powerful computers, the new mathematical advances in recent years in terms of algorithms, and the recent availability of big data to smaller businesses thanks to computing and data storage in The Cloud, supply chain software specialists can assemble huge, complex models of any end to end global supply chain, taking into account everything from the costs and availability of raw materials, to the impact of import taxes.

In Dr Karrenbauer’s knowledgeable opinion, this modeling could reduce global supply chain costs by as much as 15%!

Silo mentality is holding back progress

But one of the biggest problems that confront this global supply chain modeling is silo thinking and attitudes. Sometimes it comes down to the NIH (not invented here) syndrome, and sometimes it comes down to mental pigmy-ism. Some people have an aversion to the power of the algorithm; some people don’t like to think they’ve been upstaged, and some people won’t do anything more than follow a narrow brief to the letter. It is something that is often fostered by those trying to protect their own rear ends; or thinking that they’ve got to.

The problem is that some global supply chain professionals don’t have the ability to take in the bigger picture and are reticent to admit it. It’s rather like the mad rush that came about in the 1990s to source everything from China. China burst on the global supply chain scene thanks to the investment had made in plant and the cheap cost of its labor.

The Chinese syndrome

Businesses all around the world started to source products from China to take advantage of this improved capacity and cheap labor. But in many instances they didn’t take into account some of the disadvantages such as increased shipping costs and lengthening lead times. Add to that the latest fears about the Chinese economy and this sort of decision making can be seen as potentially being very short-sighted.

New supply chain modeling eclipses standard advances data analytics

The new data analytics that are now available can look at the bigger picture and this is where they have something new to bring to the party. To date, data analytics have only really been capable of looking at individual segments of global supply chains.

Whilst this in itself was a big improvement to supply chain execution when data analytics first hit the scene, it is now eclipsed by the sort of end-to-end supply chain modeling that can be achieved with the new generation of advanced data analytics, linked to a special understanding of how to create robust supply chain models that will stand up to deep probing and modification.

The end-to-end global supply chain modeling process

The modeling process starts with the acquisition of raw material with suppliers; outbound and inbound freight from source to manufacturer, and the deep drill-down capability on production; being able to drill down as far as necessary into individual facets which each have their own economic micro-environment.

Add to that the ability to deal with complex bills of materials, shifts of manufacturing location, final distribution to the warehouse and/or end user, and international finance and, it can be seen that this bigger picture really is big. It is literally everything and anything in an end-to-end global supply chain; all completely modeled.

It just seems to be such a shame that we have the technology to gain up to 15% more economies from our global supply chains, but that it is the human management side that is letting us down.

A prime example of silo mentality

In Dr Karrenbauer’s interview with Fortune magazine, he highlighted silo thinking at its worst when he cited one particular food manufacturer whose name was not divulged. This food manufactures is one of the biggest in the world, and they clearly support and even reward silo thinking.

This company’s production people made a public statement that they were going to manufacture their food products at the cheapest locations. They said that the implications on purchasing at one end of the supply chain, and on distribution at the other end, were of no concern to them. Their reasoning was that they had been told from above to optimize their manufacturing costs, and that was what they were going to do.

Ditch silo management and realise big picture rewards

It begs the question of “Does the CEO know what is going on in his or her company, and if he or she does, why are they promoting that sort of attitude and behavior?”  Unfortunately however, it is typical of much of manufacturing and while this mentality continues to abound unchecked, total end-to end remodeling of global supply chains will not be allowed to happen. Big picture rewards will never be realized.

Does the company you work for promote a silo mentality regime? If so we would be pleased to hear about the ways in which you think that the company’s thinking can be turned around. Would an explanation of the potential rewards of end-to-end global supply chain remodeling help to sway the argument?

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