In many smaller companies there is no overarching supply chain function. Production planning and inventory management are being done in the Operations department, while transport and customer service, for example, belong to the Sales department. Purchasing on its turn, is typically part of the Finance department. Ultimately, it doesn’t really matter who reports to whom, of course. What matters is, that these different departments work together along the supply chain, from the purchase of the raw material to the delivery of the finished product to the customer. And that’s where things often tend to go wrong, especially if all those supply chain activities are performed by different departments.
I will describe an example that might be familiar to you. A purchaser who’s responsible for the replenishment of raw materials, needs to estimate future consumption. He or she uses the production planning for the coming period to do so. Typically, however, that production schedule will change a couple of times between the time of creation and the time of execution. In addition, a planning might have only been drawn up for 1 week, while the delivery time for some raw materials is up to 6 weeks. For the remaining 5 weeks, the purchaser will make an estimate based on historical figures. Nothing wrong with this idea, but if, in those 5 weeks, more than expected finished products are planned which use that one raw material with a 6-week delivery period, you might get out of stock.
How to avoid this? By working together! For example with the production planner, because he may have already known in the first week that a large customer order had been received for the finished product that consumed your specific raw material. Now I can hear you think: “so why doesn’t he or she let me know? He should have known that…” Maybe you are right, but I assume that people act with the best of intentions, so probably the planner did not know or at least did not consider the impact on raw materials.
Depending on the size and activity of your company, there are many possible solutions to these situations. They can be as complex as software that increases supply chain visibility or as simple as: sit together for half an hour every week and exchange the information you have, even if it has not yet been formally incorporated, for example in a production plan. Either way, collaboration is the message here.
Sounds logical … so why aren’t we collaborating then? Let’s go back to the organizational structure in the example above. If the customer is not satisfied due to a late delivery, he complains to Sales. The transport planner, who is also in the Sales department, explains to his boss that he could not deliver because the products were not in stock. So the Sales Director asks the Operations Director for an explanation, who, in turn, asks the production planner. Naturally the planner refers to the shortage of raw materials due to a late order at the purchasing department. So now the Finance Director, who’s responsible for purchasing, is also involved and will make an inquiry to the purchaser. Of course I make a caricature here, but employees are not really motivated to work together by this silo thinking. It should be perfectly possible to collaborate across departments, but in practice we see that it is easier when various supply chain functions are brought together in one department, especially in companies that have grown from small to midsized companies over the last few years.
But hey, no reason to be pessimistic! The good news is that in many companies there is room for improvement… Go and check in your company where you could improve collaboration across departments of the supply chain. Try to improve the flow of information, either through software, by sharing files or by setting up structured meetings. Neither of those solutions have to be very expensive or take a lot of time, but they should result in more satisfied customers, less inventory and less costs on urgency deliveries and thus improving the result of your company.
Are you having a hard time setting up organization, processes and information flow in your company to collaborate in an efficient manner over the supply chain? Please contact me to discuss how I would be able to support you on this.
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