In our first article we where You Don’t Need To Read Another State of Procurement Study for the Next 5 Years!, we told you that all of these studies more or less say the same thing year after year with only minor deviations after a decade. Having compared all of the hot trends for 2024 to the trends from a decade ago (since SI, unlike some sites that purge the majority of their history when they do a site upgrade/migration, has its entire 19 year history intact), we noted that the only differences now versus then are:
- Gen-AI is the new fluffy magic cloud
- Fake-take (sorry, intake) is the new dangerous and dysfunctional dashboard
and that these are, lo and behold, the tech-du-jour!
Then, in our last article on The Top Barriers/Roadblocks to Success/Challenges in Procurement we noted that since the only difference between the majority of these studies is the technology enablement theme the report was trying to sell, there was no need to keep reading them every year if you understood the core issues, namely, the barriers, risks, and concerns. So we decided that we were going to ease you of this burden by addressing the core issues that underlie your problems, explain what they are, help you understand why they keep coming back, and thereby give you some of the foundations to start attacking them. Today we’re starting with the most commonly citied barrier: siloed ways of working.
A Brief History …
You can thank the industrial revolution for this one. Not only did it usher in the Gilded Age* (as partially documented by Mark Twain and Charles Dudley Warner in their book The Gilded Age), but it ushered in the need for increased specialization, which began the process of compartmentalizing business operations into multiple functions beyond just “management” and “workforce”. It literally started with the production line, where different people had specific jobs, and then carried over into the back-office where Purchasing was separated from Accounting and Sales (and yes, modern Purchasing dates back to the Industrial Revolution which saw the publication of the first published manual we know of in 1887: Handbook of Railway Supplies).
During war time, we saw the emergence of Human Resource departments due to the massive labour demands (and the resulting shortage of workforce). Once Radio, in 1931, and then TV, in 1955, reached the majority of households in North America, the age of the Marketing Mad Men was ushered in and Marketing separated out as a critical function. Then, as outsourcing began to uptick in the 1960s (primarily with EDS that led IT outsourcing in the late 1960s), and really took off in the 1980s when the other big firms (and McKinsey in particular) started touting outsourcing in general (especially for the production of commodity goods) as the way to lower costs, we had true separation of Supply Chain and Logistics in most organizations that didn’t have it before (because they traditionally only bought raw materials from countries they didn’t operate in through Purchasing). Finally, when Purchasing needed to become more strategic, we had the rise in Procurement in the 2000s.
In summary, over the past 150 years, the net effect of “innovation” has only been to further fragment the business into more-and-more smaller task-focused units, each with their own systems, methodologies, software, and language, which has only resulted in an increasing divide.
The Problem
In short, we’ve forgotten that while it might be important to breakdown complex systems and processes into discrete tasks so that they can be managed by people and systems (and especially when each of those tasks requires advanced education, experience, knowledge, or rule sets), it’s also important not to lose sight of the forest in favour of the individual trees.
In addition to breaking down tasks, we’ve also broken down the management of the tasks, and the picture that is used in the decision making by the managers of the task. As a result, we’ve created a situation where everyone works and makes decisions independently with no understanding of the ramifications and impacts of their decisions on other parts of the business. Nowhere is this more evident than in Procurement (which is tasked to save money), Supply Chain (which is tasked to assure supply), or Logistics (which is tasked to get the supply in on time and the customer orders delivered on time).
The reality is that you can’t save money in Procurement simply by accepting a lower bid if that lower bid is from a supplier who can’t deliver the quantity you need on time (or delivers a lower quality with a higher defect rate) because not only do you lose sales but you also lose savings if you don’t hit the guaranteed volumes (for the negotiated discount) because sales dropped or if you have to emergency source replacements from a more expensive competitor charging above market rates. Nor do you have supply assurance in Supply Chain if you don’t ensure that the contracted parties meet your production, quality, and testing standards before the contract is signed or if you don’t have visibility into current demands vs. the current re-order schedule because a demand spike will result in a stock out if the re-orders are set to auto-pilot by Procurement to re-order monthly assuming flat sales. Furthermore, you certainly can’t hit delivery deadlines in Logistics if the new factory that was chosen in China is 1,000 miles further from the port in a locale that isn’t serviced by any of your contracted carriers who can guarantee port delivery times (to make sure it gets on the next ship) or any carriers that will give you such guarantees. Procurement needs visibility into delivery times and quality levels to select a suitable factory. Supply Chain needs visibility into demand and the re-order schedule to ensure supply. Logistics needs insight into required delivery times and current options to meet those mandates, and it needs it with enough time to change carriers and routings and modes if the current plan won’t work.
In other words, we’ve forgotten that while specific complex functions are best accomplished as a sequence of discrete tasks that can be masted by appropriately educated, experienced, and/or trained people and agentic systems (no AI needed, by the way; but that’s another series), the management thereof is best done from a holistic viewpoint. As Dirk Gently believes, everything is connected and losing that connectivity is what is crippling many business units today because they don’t have the data, insights, and holistic wisdom to make the right decision that balances the competing priorities which, unsurprisingly, is also one of the biggest barriers to success.
The Necessary Realization
The silos aren’t going away. No one is going to give up their fiefdom and even if enough of the fiefdom rulers retire, no one knows how to run an integrated business anymore. (This most definitely includes MBAs who are the new Masters of Business Annihilation as most of them try to run a business from a spreadsheet with no actual understanding of what the business does and how it does it. They all forgot that the super rich “railroad tycoons” of the industrial era were all brilliant Engineers who knew exactly what the business made, how it was made, what was required, who was required, what it cost, and what it didn’t.) But, in the end, the silos aren’t really the problem.
According to the survey, the problem is the siloed ways of working, but they aren’t going away either. Systems, processes, and tasks are just too complex to re-integrate as many tasks now are already so complex that there is a shortage of talent to accomplish them. (And don’t think AI is going to save you here. The AI that works is that designed for precise, well defined tasks, not systems thereof.) Fortunately, it’s not the siloed ways of working that’s the problem, it’s the siloed decision making.
While the siloed decision making isn’t going away either (because then the fiefdom managers wouldn’t have a fiefdom anymore), it’s only a problem because the decisions are made in isolation. If the decisions were made against the bigger picture, made with the same (agreed upon) priorities (in mind), and made in the best interests of the business, while the decisions might not be perfect, they’d be pretty close most of the time. Just as the Pareto Principle tells us, if we can identify and agree on the major issues and priorities, that 20%, and make the right decisions against those, we’ll get 80% of the potential results, and for most businesses, that would be more than good enough (and years beyond where they are today).
The key to making this happen is Data Harmonization and the Integrated Strategic, Tactical, and Operational Framework that the doctor and Bob Ferrari (of Supply Chain Matters) presented in our 7-part series on Direct Sourcing and Supply Chain Planning (summarized in Part 7).
Even SAP has pivoted to data harmonization and Unity Analytics because it realizes that there is no more inherent value in its Business Data Cloud than any of the other modules, systems, and platforms it has brought to market over the past fifty (50) years unless the business can get a unified view to do unified planning and execution. If you can harmonize your data through a central business intelligence platform so that all business units that are part of the source-to-supply-to-service process flow, and feed that data into modelling platforms that can synch that data with agreed upon priorities, then at least the decisions, while still technically siloed, will be made with the collective in mind and while there might still be some issues, we guarantee it will no longer be a barrier to success (but might find its way onto a top opportunities list for optimization, but at least you’d finally be taking a step forward).
The Technological Requirements
The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.
In order to address the problem once and for all, you need the right technology with the right capabilities that support the right processes. If you want some guidance into what this is, tell your favourite provider to reach out to Bob Ferrari of Supply Chain Matters or the doctor as we’d love to write the series explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities. Since this has NEVER been inked (because the studies continue to focus on just documenting what these challenges, risks, and priorities are, not solving them), it’s a considerable effort to say the least. But if, instead of sponsoring the same old consulting or analyst survey year after year after year they wanted to sponsor something new, we’d definitely be interested in creating this for you! Otherwise, you’ll have to wait years and years as we can only drip our insights out as our free time permits or beg Pierre Mitchell to de-mothball and share his writings from the early 2000s (when he was at AMR and Hackett as Pierre, along with Chris Sawchuk, are among the very few analysts left in our space from the early days and Pierre actually addressed some of these challenges and priorities way back when.) Note that before we can even start writing the true requirements, this blog has thirty (30) barriers, risks, and concerns that need to be explained — each of which will require its own article!
* Don’t worry if you are American and don’t know what the Gilded Age is — you will soon! Your administration is doing its best to usher in a new Gilded Age.