Balanced supply chain management Part 4: The key—leading beyond the silo

From the November 2024 edition of Supply Chain Management Review.

November 2024

Another year, and another successful NextGen Supply Chain Conference. I’m just back from our annual NextGen conference in Chicago—this was my second conference since joining Peerless Media in 2023—and it was an…

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Editor’s Note: Supply Chain Management Review has published a series of four articles from the authors on achieving balanced supply chain management. You can read the previous articles in the series at the links below:

Balanced supply chain management: Setting the stage

Balanced supply chain management: Managing at the edges

Balanced supply chain management Part 3: Changing how we make decisions

This is the fourth, and final article in the series.

Over the previous three articles, we laid out some of the tensions that the modern supply chain leader must identify and address. Yet, this discussion has left unanswered a simple but key question—how do you implement balanced supply chain management? The answer is itself both straightforward yet challenging—you have to be able to manage, but more importantly, lead beyond the silo.

This means that the supply chain manager must be able to function beyond the supply chain “silo” and work with, communicate, educate, inform, and shape the actions and plans of other groups both within the firm and outside the firm. Leading beyond the silo means collaboratively working on an ongoing basis with marketing, accounting, finance, human resources, engineering, and, most importantly, the top management team. It also means working in alignment with suppliers, customers, the government, and other stakeholders (e.g., the local communities in which the plants are located, and with stockholders).

Life within the silo

For many supply chain managers, leading beyond the silo means leaving the comfort of their supply chain silo. Within the supply chain silo, you are dealing with other supply chain managers who have had the same or similar experiences as you. You are utilizing a common “language,” a common set of tools (e.g., MRP, lean, S&OP), and a common set of measures and metrics.  Many supply chain managers that we have encountered in our collective experiences can be described as executors. That is, their attitude can be best summarized as “tell me what you want and leave us alone to get the job done.” In short, supply chain managers deal with many aspects of supply. They are often disconnected from the demand side of the organization.

A frequent problem encountered is that the supply and demand sides of the organization often deal with similar issues but view them through very different lenses. For example, marketing (representing the demand side) is interested in increasing sales. To do so, it views inventory as attractive because inventory enables sales to take place. Yet in many firms, marketing is not responsible for inventory. In contrast, supply chain is very concerned about inventory because it consumes space, resources, time—and doesn’t directly add value. This difference in perspective is not new; the great business management scholar Peter Drucker referred to this difference as the “The Great Divide.”

The Great Divide frequently results in situations where what is being asked of the supply chain manager is either not possible, difficult to achieve, or by implementing it creates other problems (a ripple effect). Because of the ensuing silo mentality (dealing with supply chain people is good; dealing with anyone else must be tolerated at best), supply chain managers only interact with those outside of the supply chain silo when there is a problem. This, in turn, creates an impression that the supply chain is a problem. When you see someone from supply chain coming down the hall to talk to you, you know something is bad. It is not surprising that the increased interest in supply chain resilience emerged only after it was determined that problems in the supply chain adversely and significantly affected the firm’s financial and stock price performance.

Ultimately, this situation results in many outside the supply chain viewing the supply chain in a way very familiar to the Victorian view of children—supply chains should be seen but not heard.

This siloed approach is anthemic to balanced supply chain management. Such an approach is slow. It is reactive. It fails to address the various tensions and conflicts previously discussed. More importantly, it runs counter to the trends and realities now facing not only the supply chain and its managers, but also the firm, namely these as follows.

• Supply chain management lives within an interconnected world—one in which its actions affect the performance of other groups and one in which the decisions taken by others outside of the supply chain affect the supply chain itself.
• Supply chain management cannot achieve its objectives by itself; it needs the participation and support of other groups outside the supply chain silo.
• There is an increasing appetite on the part of top management for developing a better understanding of the supply chain, its capabilities, and how to better align its capabilities with the needs and strategic objectives of the firm.
• In the firm there is a poor or limited understanding of the supply chain both tactically and strategically.
• In today’s increasingly dynamic and turbulent environment, avoidance is preferred to correction.

The rest of this article will expand on these five realities. It will then finish by identifying actions that the supply chain manager can take to transform themselves into supply chain leaders who can effectively lead beyond the silo.

Living in an interconnected world

In the first article in this series (“Balanced supply chain management: Setting the Stage,” Supply Chain Management Review. May/June 2024. pg. 24-31), we introduced a graph summarizing balanced supply chain management (Figure 1). This diagram clearly shows the interconnectedness that the supply chain leader must deal with.

One of the problems with this interconnectedness is that one group, when making its decisions, may not be aware of how these decisions affect not only supply chain management but also the strategic positioning of the firm. To illustrate this point, let’s return to a story that we previously used in this series—Starbucks and its problem with customers not picking up their orders (even though they have paid for them).

• Starbucks is faced by a problem involving its customers and their dissatisfaction with the current setup.
• Starbucks competes by offering its customers affordable luxury (this means that it allows customers to
• customize their drinks).
• Starbucks deals with three distinct customer segments:
• Dine-in customers: people who enter the store to buy their coffee and to experience the “Starbucks” experience.
• Drive-through customers: people who want a cup of coffee delivered quickly.
• Digital customers: customers who place their orders using the Starbucks app and who pay for their orders in  advance. These customers expect their order to be ready at a certain time.
• Most of the orders not picked up come from digital customers.
• There is only one process to serve all three customer segments.
• For Starbucks, their most popular drink is the café latte, which is sold in 383,201,280,000 different combinations.

  This situation provides an ideal opportunity for leading beyond the silo. It is apparent that top management and marketing were not aware of the implications of the various changes introduced over time (i.e., introducing new customer segments to serve (drive-through and digital), allowing extensive customer-driven customization, and having only one process serving all three segments). Supply chain leaders should point out that the drinks  being left behind are not the problem; rather, they are a symptom. Driving this symptom are the following factors.

• With so many combinations, processing times (both in terms of their means and variance) can be expected to increase, thus adversely affecting service levels.
• One process cannot be expected to adequately service all three segments equally well. Each of the three segments places different demands on the process. The drive-through customer, for example, wants speed—they want their coffee fast. If they do not get it fast, then they will be potentially bottlenecking the drive-through line. In contrast, the digital customer wants reliability—they want their orders ready by a certain time. If they have to wait for their drinks, they are not only likely to drive away empty-handed; they are also likely not to come back.
• The explosion in options complicates inventory management (remember, we often deal with perishable items such as milk and soya milk), consumes floor space (you have to store the various components), increases costs, and complicates training.
• These problems are further exacerbated if you add food into the service equation.
• To do a good job servicing these various segments, Starbucks must have a different process for each segment (the logic for this position can is discussed in Melnyk et al. (“The Customer-centric Supply Chain,” Supply Chain Management Review. December 2017. pg. 28-37).
• There is no clear indication of which segment is the key customer—a critical principle of strategic supply chain management.

A final observation (that we will expand upon in this paper) is that the impact of leading beyond the silo is greatest the earlier it is introduced in the design-rollout process. Had these issues been raised when the management team at Starbucks was considering opening the Starbucks’ system to the drive-through or the digital customer segments, most of the subsequent service and execution problems could have been avoided.

 

In this context, leading beyond the supply chain means showing others how their initiatives can create potential problems for not only the supply chain, but also the firm. These problems often occur because the decision-makers have incomplete or inaccurate information. Leading beyond the supply chain addresses this deficiency. In addition, this approach means giving these groups options for addressing or mitigating these resulting problems (we refer to this as the “no, but…” approach).

To better understand the problem of this approach, consider the following incident (as shared at the 2023 NextGen Conference) involving the Ferrara Candy Company. If you don’t know Ferrara’s brands like Laffy Taffy, Brach’s, Spree, and Lemonheads, you may be a hero to your dentist but you’re missing some great sweet treats. The problem that Ferrara faced involved Chewy Spree. This candy product came in two packaging options: roll wraps and bags. The marketing team wanted to get rid of the bag option and focus on the roll wraps. The reason? Roll wraps generated higher margins.

At first glance, this suggestion made sense. What marketing did not understand was that perfectly shaped Chewy Sprees went into the roll wrap packaging, while irregular Chewy Sprees went into the bags. Getting rid of the bags would have meant that all the irregular-shaped Sprees coming off the manufacturing line would go to scrap, damaging overall margins. Once the supply chain team shared this information with the marketing team, marketing decided to keep the bag packaging option.

The need to build participation and support outside of the supply chain

It is important to recognize that almost all the initiatives that supply chain management may want to implement require some form of participation and support from others. A good example of this issue can be found in the concept of going from straights to triangles previously discussed in this series (Melnyk et al, “Balanced supply chain management: Setting the Stage,”  Supply Chain Management Review. May/June 2024. pg. 24-31.).

This concept involves restructuring our relationships with the customers (especially the key customers). In straight lines, the customer talks to marketing first, who then talks to supply chain. This approach is fatally flawed in two ways. First, it often takes too long for customer concerns to get from the mouth of the customer to the ears of supply chain management. Second, the information that is passed to supply chain management is often not clean—it has been shaped by the expectations, beliefs, and views of marketing. Consequently, the triangle approach is preferred—a situation where the customer talks both to marketing and to supply chain management.

Yet, there is an issue here. For the straight line to be converted into a triangle, marketing must agree to and support this change. In most organizations, it is marketing that primarily deals with the customer. In other words, marketing owns the customer. To shift to a triangle approach, marketing must be willing to share this ownership with supply chain management. Convincing marketing that this is a good idea and that the benefits exceed the costs is the real challenge facing supply chain management. Remember—just because it benefits supply chain management does not mean that this is enough to convince marketing to share the customer.

Top management wants to learn about supply chain management

In a recent Harvard Business Review article, Cheng and Roy (“To build resilience, CEOs need to become supply-chain experts,” Harvard Business Review. Sept. 12, 2024) argued that in today’s world, supply chain management has become increasingly important. Top management is now finally recognizing that supply chain management can significantly affect the performance of the firm, both strategically and financially, and both negatively and positively. Consequently, it is strongly recommended that the people in the C-suites become supply chain management experts.

Key to this process of becoming supply chain experts is education. This education can be obtained from multiple sources: online programs, in-house seminars, executive education programs, and presentations by industrial experts. One readily available source of supply chain management education and training is the firm’s supply chain management function. Consequently, delivering this type of education requires leadership beyond the silo.

In delivering this material to top management, the information must be presented in a form that is understandable to this level. These people are not interested in processes and systems that are used to convert strategic intent to execution reality. Rather, they are interested in issues such as the following.

• What is supply chain management and how can it affect the performance of the firm?  Supply chain can help the firm broaden its reach, get products to customers more quickly and/or less expensively than competitors, reduce stockouts, etc. All of these things drive the revenue side of the equation.
• Understanding the notion of supply chains as capabilities—certain things that they can do well and certain things that they cannot do well.
• Exploring the realities of supply chain management. What factors influence how supply chains perform and the fact that supply chains suffer from capacity lags (i.e., it takes longer for supply chains to change than it takes for customers to change their mind) thus requiring the supply chain manager to always be interested in the future.
• The linkages between the business model and the supply chain.
• What issues cause the supply chain to perform poorly and what issues cause it to perform well.
• How performance measures and metrics influence supply chain performance.
• The importance of identifying and serving the key customer(s) and stakeholders rather than the stockholder(s).

Overcoming supply chain misperceptions and ignorance

This next force encouraging leadership beyond the supply chain can be viewed as an extension of the prior discussion. A lack of understanding of supply chain management is not limited to top management; it also extends to the other functions in the firm—marketing, finance, human resources, accounting, and engineering (to name a few). Often, these functions see the supply chain as tactical capacity—that is, capacity that is to be filled up with orders. If there is unused capacity, then it must be filled even if the type of order accepted creates problems for the supply chain. Again, leading beyond the supply chain requires educating these other areas so that they better understand supply chain; so that they make promises to their customers that the supply chain can be realistically expected to deliver.

A good example of the need for leadership beyond the silo was observed during the process of the Michigan State University Supply Chain Management: Beyond the Horizon research initiative (2013-2018). In one of the company interviews, the CEO described a situation in which it found itself. This company sold large tunnel-making machines (the type used to dig the tunnels for projects such as the Big Dig in Boston). The machines fell into one of two categories: those with little need for consumable supplies (e.g., blades) and those that required such supplies. Like the Gillette blade model, the profit margins on the latter types of machines were relatively low; the company made its profits on the consumables. One of the marketing people decided to focus on the first categories of equipment, with the result that a large number of these machines were sold. This action affected the supply chain in two ways. First, the production capacity was used to produce these units (thus delaying the production of any units belonging to the second category). Second, the lack of capacity affected the ability of the system to produce adequate levels of consumables. The CEO, in an interview, noted at the end that he had a long discussion with the appropriate marketing personnel to ensure that they did not repeat the error in the future.

Avoidance is preferred to correction

At a Toyota automotive plant, one of the authors saw the following sign: P>S. When he asked about this sign, he was told: Prevention always beats savings. In other words, avoiding a problem is always preferred to correcting the problem once it has taken place. This approach is very relevant for leading beyond the silo.  Such management and leadership skills are needed since they can help the organization identify potential problems early on in the process and resolving those problems before they become too large. Returning to the Starbucks example, had Starbucks been able to identify the impact on service times of the exploding options and the differences in customer types combined with the presence of one line serving all three segments before these problems were actually incurred by its customers, it could have avoided losing those customers who had paid but could not wait for their drinks. To identify these problems early on requires active participation of the supply chain.

Leading beyond the silo: Guidelines

Having established the need for leading beyond the silo, the next question that must be addressed is that of how to achieve this in practice. “Things get done when people know each other,” Doug Ford, premier of Ontario, recently stated. To that end, we have a set of guidelines that you should follow if and when you want to lead from beyond the silo.

Understand the firm’s business model. As noted by Melnyk (“The Emergence of the Strategic Leader,” Supply Chain Management Review, November 2016. pg. 10-19), being a leader means being in tune with the strategy of the firm.  Being in tune with the strategy of the firm means understanding the firm’s business model (Figure 2). The business model can be thought of as a strategy operationalized.

 

There are several important features of the business model that make it especially important to the supply chain leader.

• It identifies specifically who the key customers are—the people that we should delight profitably. It also recognizes that not all customers are equally important.
• The value proposition identifies how the firm will service the key customer(s). It is here that we focus on how we are differentiating ourselves in the market.
• It recognizes that investments made in the supply chain fall into the capabilities category and that these investments cannot be effectively made and the supply chain managed without first understanding the key customer(s) and how we offer that customer products and services that they are  willing to pay for.

Whenever the supply chain leader has a concern, it should not be focused on simply how changes are adversely affecting the supply chain, but rather on how these changes are affecting the business model.

The table stake is operational credibility. To lead beyond the silo, the supply chain leader must have a system that is credible—that is, it can make promises that it can be realistically expected to deliver. Without this level of operational credibility, the involvement of the supply chain may be seen as deflection; an attempt to redirect attention to others and away from a supply chain that is having difficulty delivering.

Understand the difference between “no and “no, but…” The most powerful weapon that the supply chain leader has when dealing with others is the power of saying no. This statement indicates that a request being made by someone in marketing or engineering cannot be met by the supply chain. More importantly, in such a singular response, there are no explanations provided nor options for meeting the objectives presented. If the supply chain leader is always saying no, then an interesting phenomenon occurs—people stop asking the supply chain leader and they find ways of working around them.  The result is the emergence of problems later accompanied by the tired but true mantra—it is better to ask for forgiveness, than to ask for permission.

Rather than saying “no,” the supply chain leader should say “no, but...” This response incorporates three critical elements.

• An initial position: No—we cannot immediately do what you are asking to do in the way that you are asking for it to be done.
• A rationale: Here is why that request is not feasible.
• Options: Here are feasible alternatives, and  the costs and implications associated with each alternative; what do you want to do now?

This approach recasts the supply chain leader from an obstacle to a facilitator (thus encouraging further interactions with other groups).

Ensure that you have the support of your bosses. Leading beyond the silo is a risky undertaking—it can fail. However, to successfully carry out balanced supply chain management, it is a vital undertaking. One thing to remember with any such undertaking is to first ensure that you have the full support of your boss(es). Take the time to explain to them what you are trying to do and why. Get their input. But, make sure that you have their full support. You will need this support to show others that the act of leading beyond the silo is not simply an individual undertaking but that it is an undertaking being supported by others. Such support also strengthens the efforts of the supply chain leader by adding credibility to their efforts.

Learn to communicate in “different languages.” It is important to recognize that every silo within the firm (e.g., finance, human resources, accounting, engineering) has its own language. Consequently, terms and phrases that may make perfect sense within your silo may be meaningless to someone working in another silo (e.g., consider explaining Takt Time to someone working in HR or strategy). Therefore, it makes sense to take time to understand the language used in the other silos, and not use acronyms if you hope to communicate effectively. Thankfully, this need to learn another language can be greatly simplified if you focus on identifying the measures and metrics used in the other areas to evaluate and reward performance.

Measures and metrics form a common language for the firm. If you understand how performance is measured and rewarded, and if you can show how a request, plan or suggestion can positively influence these measures, your odds of securing active participation and support of other groups is greatly enhanced. Just remember, when you approach someone outside of the supply chain with a proposed course of action, they will always look at that plan through the eyes of “WIIFM” (what’s in it for me).

Before leaving this section, if you are interested in learning more about performance measures, please see Melnyk et al. “Are your performance measurements destroying your supply chain?” Supply Chain Management Review, November/December 2019. pg. 28-33; “Are your performance measurements destroying your supply chain? Part Two,” Supply Chain Management Review. January/February 2020. pg. 28-33).

Focus on outcomes, not solutions. As a rule, supply chain people feel most comfortable dealing with solutions. After all, they are often most concerned about execution and execution involves solutions. However, when leading beyond the silo, the focus on solutions is often not only misplaced but also based on a potentially dangerous assumption—that everyone understands what the desired outcomes are and their actions are based on achieving these outcomes. Far too often, these desired outcomes are not well understood and, if they are, often not everyone agrees with them. Consequently, leading beyond the silo demands that you focus on the outcomes. That is making sure that everyone that a supply chain manager works with understands what the desired outcomes are and agrees to them. Once this understanding is in place, the next step is simple—allow each group to decide how best to achieve these outcomes. Given that you have established operational credibility, this allows you to focus on the solution and, more importantly, to modify the solution once something unexpected occurs. It also allows you to justify and defend your actions because you can show everyone how the changes were consistent with the desired outcomes.

Communicate on a regular basis. If the only time that you lead beyond the silo is when there is a problem, don’t be surprised if your appearance causes people to hide. Since you want to build a relationship with others and since you want these others to see you in a positive light, then talk with these other groups on a regular basis. Build relationships, share information, discuss problems and formulate solutions—do these activities on a regular basis. For example, if we want to work with marketing, schedule a regular weekly meeting with marketing. In that meeting, talk about what is happening in the supply chain. Learn from marketing what is taking place with the customer and the marketplace.

Understand the 1-10-100 rule and act accordingly. In the quality literature, the 1-10-100 rule exists. There are many different interpretations of this rule. The one that we will use is that $1 spent introducing a change at the design stage is equivalent to $10 spent introducing the same change at the prototype stage, which is also equivalent to $100 spent on introducing the same change at the production stage. What this rule emphasizes is the importance of design to the firm and the supply chain. It also forms one of the major foundations of leading beyond the silo—get involved in design decisions as early as possible.

In the design phase, it is easier to introduce change or to point out potential problems.  However, once the initiative gets into the prototype or full production stages, investments have been made, commitments and agreements forged, and momentum is building. Introducing a change at this stage is not only difficult to do but may also cause the supply chain leader to be seen as someone who is blocking or stopping progress.

It is important to remember that the supply chain has a “right” to be involved in these decisions at such an early stage—ultimately, all the decisions reached and investments made will affect the supply chain.

Before leaving this section, it is important to note that involvement in the early design stages is the most effective place to think about issues such as planning for resilience and planning for unexpected events. Murphy lives (i.e., the threat of unexpected changes); the best place to deal with Murphy is during design. As Dwight D. Eisenhower, past United States president and supreme commander of the Allied Forces in Europe, once noted, “plans are worthless but planning is everything.”

Leading beyond the silo is a long-term undertaking. The final point is somewhat self-evident. Leading beyond the silo takes time; it needs resources; it demands support from your bosses; it needs to be built on a foundation of operational credibility. Consequently, if you want balanced supply chain management, you need to lead beyond the silo, you need to see achieving this objective as one that takes time. To lead beyond the silo, you need commitment.

Leading beyond the silo

As we conclude this article, there are four final points that readers should take away.  First, the tensions underlying balanced supply chain management cannot be addressed by supply chain personnel alone working with their silo—it needs the participation and involvement of others. Second, leading beyond the silo requires the presence of a supply chain leader, rather than a supply chain manager (for more on the differences between these two management styles, see Melnyk (“The Emergence of the Strategic Leader,” Supply Chain Management Review. November 2016. pg. 10-19). Third, leading beyond the silo requires the supply chain leader be able to master the final tension—the needs of the supply chain as compared to the needs of the firm. Finally, leading beyond the silo requires the supply chain professional to think of themselves as change agents. That is, there is little to nothing that a supply chain professional can do within the silo to drive significant performance improvement.

However, there is a lot that can be done outside the silo. Yet, we cannot tell others what to do. Driving change through edict leads to compliance, at best. To drive change, we must be able to connect with and understand the unique predicaments facing our colleagues in other functions. How can we help solve their problems while furthering the performance of the supply chain and business? To do this, we must develop empathy, understanding and lead from their position.

In today’s increasingly turbulent, dynamic, and uncertain business world, leading beyond the silo is not simply a “nice to have” skill—it is a requirement for success both today and into the future. 

The authors would like to acknowledge the contributions of David Frayer and Keith Groya, both of the Executive Development Program at Michigan State University for their assistance in the Balanced Supply Chain article series.

About the authors

Steven A. Melnyk is a member of the department of supply chain management at the Eli Broad College of Business at Michigan State University. He can be reached at [email protected].

Alan Amling is a Distinguished Fellow at the University of Tennessee Supply Chain Institute, and CEO of advisory firm Thrive and Advance, LLC. This article is adapted from “Organizational Velocity: Turbocharge Your Business to Stay Ahead of the Curve.” He can be reached at [email protected].

Nick Little is the director of the Railway Education Center for Railway Research & Education at the Eli Broad College of Business at Michigan State University. He can be reached at [email protected].

Lee K. Levy II is a retired Major General of the USAF, and CEO of The Levy Group, LLC. He is a doctoral candidate at Vanderbilt University and holds the Directorship Certification from the National Association of Corporate Directors. General Levy can be reached at [email protected].

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