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Silo Busting

Guest post by: Dr. Rick Johnson

Article Overview: In the old days we had sales guys and we had marketing guys and we had purchasing guys. The sales and marketing guys hated the purchasing guys. They never bought enough stuff, right? The wagon was never full. A common quote coming from some sales people: . "Our purchasing department sucks; I know there is an extra 5% discount out there. Purchasing is forcing me to sell at these high prices; we are just not buying right." The purchasing guys, in the mean time were saying; "Our sales guys are goofy. They keep saying they can't sell from an empty wagon. They want the wagon so full the wheels will come off. They say-"Put this in and I will sell it" and they never sell it. These kinds of feelings, these quotes were like a tradition. It describes a natural silo between sales and purchasing. It's not really supposed to be funny.

Silo Busting

In the old days we had sales guys and we had marketing guys and we had purchasing guys. The sales and marketing guys hated the purchasing guys. They never bought enough stuff, right? The wagon was never full. A common quote coming from some sales people:

.

"Our purchasing department sucks; I know there is an extra 5% discount out there. Purchasing is forcing me to sell at these high prices; we are just not buying right."

The purchasing guys, in the mean time were saying;

"Our sales guys are goofy. They keep saying they can't sell from an empty wagon. They want the wagon so full the wheels will come off. They say-"Put this in and I will sell it" and they never sell it.

These kinds of feelings, these quotes were like a tradition. It describes a natural silo between sales and purchasing. It's not really supposed to be funny, it's reality. Distribution businesses were often built with silos. It seemed natural. The organization chart looks like an inverted rake. This is even more common in privately held family owned distribution businesses. Cutting across these silos became a competency necessary to create success within the organization. Pressure on individual managers to establish and maintain clear communication channels across the silos was a must. This was especially true between sales and purchasing. Communication throughout the entire organization needed to become a core competency.

The Reality

The reality is, if you want to improve the competitive position of your company you must cut across silos with any and every specific change and initiative that focuses on understanding your customers and increasing market share. If you plan to effectively break up the paralysis silos can create, you need a clear plan. You need the right skills and you need knowledge of best practice.

What Do Best Practice Companies Do?

What do other companies that always seem to operate in the upper quartile of performance do? How do they do it? The questions become how do I understand my customers and figure out what they really want? How do I apply best practice principles to align my business objectives to our customers needs? The key point is that there is not a single thing that you can do in one silo and have it really be a best practice implementation if it doesn't touch everything else. Silo busting, in order to become more customer focused, challenges us to rethink our objectives. What are our customers really about? What are their objectives? How do they specifically contribute to our success? What are their service output demands? What do they really expect of us?

Your firm is unique, but the issues that you deal with are like the other 10,000 plus firms of comparable size that are going through all the same grief that you are. So, what have other people done that have gone before you that are getting better revenue growth, better profitability and are increasing market share?" How do they cut across their silos? How do you find the answers to these questions?

Bench Marking is the Answer

What is bench marking all about? Benchmarking is the process of observation and validation of procedures and practices that the most successful companies employ. They set the standard for success. Who has the best customer service, inventory management, pricing systems, logistics, warehouse management or sales effectiveness process? Any business process can be benchmarked. Once the winners are identified, benchmarking is the means to figure out how the winner got to be the best. This provides insight to help determine what you have to do to reach those standards. Bench marking is a best practice. Best practice is not about opinions. Best Practice Bench Marking compares your business to businesses that are similar. It is a proven practice that will help discover methods to cut across silos that could be preventing your firm from maximizing success.. Most business processes are common and very similar throughout wholesale distribution.

So, who do you Bench Mark?

A common mistake many people make when beginning a bench marking initiative is that they only look within their own industry to find a benchmarking candidate. This in itself will not negate your effort to the point of making it valueless. However, you already have a tremendous amount of knowledge about your own industry. The benchmarking objective should be to find a company or companies that have a proven record of success specifically in the area that is the subject of your benchmarking activity. This means that you must focus on a specific area, process or practice that you are trying to improve. (Such as Silo busting) Bench marking an entire company, although interesting and helpful, will not allow you the time or focus to specifically address issues, processes and practices that are specific areas of desired improvement within your company.

If you plan to initiate a bench marking process in your organization your biggest return in the shortest period of time might be to focus on three specific areas that are generally the most complex for distributors that are growing. Those three areas are:

Markets

Customers

Segmentation

Much can be learned about operations, logistics, technology, purchasing and inventory management but the biggest bang for your buck on your first bench marking adventure lies in focusing on the three categories listed above. These three areas will not only help you focus on maximizing your effectiveness in growing market share, they should allow you to deal with potential silos that block cross functional synergy with the organization. However, if you know you have a specific issue, problem or challenge that you haven't been able to get a handle on; absolutely focus on that specific area.

Understanding Markets and Customers

Wholesale distributors must create and use formal methods to gather customer feedback and improve communication. Best Practice companies have a source of information about what customers think of them that does not come from their sales people. Sales people do provide information and that is fine. You need to listen to your sales force. There is no question about that, but Best Practice companies have a way of getting input directly from customers:

• What do you think of us?

• How are we doing?

• What are the practices that our competitors provide to you that you really value?

There is a way of gathering that information that does not come from the sales force. Some firms use consultants who do studies on customer satisfaction. This is a single event and it goes away. Best Practice says you build a process and gather data. Maybe it is only quarterly, but you then have something to measure every quarter. What is getting better? Is something getting worse? You must build an ongoing process that gathers data. The way you turn that into a process is to institutionalize the process so that it is done every quarter or every six months. The second thing that you need to do is to have somebody, other then a sales person, write down a summary of what key messages were heard. A suggested format is to create five key questions that you ask every one of the selected customers to rate you on a scale of 1- 10. If you ask 100 customers you will get a statistically better answer. Bench marking can provide a wealth of information on the development of a process to understand markets and customers better.

Segmentation

The other big thing we need to know about to understand markets and customers is segmentation. Segmentation is the act of dividing, separating or partitioning to define specific needs of customers and markets. Segmenting provides the intelligence that defines the various reasons why customers buy from you. It can help you determine the types of customers you should be targeting and the service output demands you need to provide to gain market share. Segmenting customers is essential to growth and profitability.

Many distributors build their business around geography instead of building it around customers. Distribution has outgrown that concept. You must segment your markets, but do not segment by small, medium and large and allocate suck up behavior based on size. That has been the typical methodology. Segmenting by customers means you differentiate based on their service output demands. What are their expectations? What business are they in? What is their perceived value of you as a supplier?

Take benchmarking seriously; reach out to your customers to better understand your markets and their demands. It can provide tremendous value and provide a different insight into your business. It helps you define specific best practice as it applies to success in your company. It can also help you "bust those annoying inherent silos" that often develop between departments, branches and those guys in corporate.

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Article Tags: leadership, purchasing department, sales and marketing, sales and marketing, silos



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