The effectiveness of supplier relationships is hindered in organizations with internal silos, due to information and communication gaps. Breaking down the internal silos is necessary to improve sourcing. - BY Donna Benjamin

Successful Supplier Relationship Management (SRM) depends on internal customers making decisions in alignment with corporate goals, rather than just departmental or functional goals. The alignment allows procurement to form relationships cultivated to meet organization-wide success strategies. Physical separation and the silo mentality create islands of people and leaders making decisions to pursue unit goals, rather than what is best for the overall organization. Procurement, including sourcing and purchasing, finds itself in the untenable position of trying to meet internal customer needs, which may not lead to the most efficient procurement process. In fact, organizational silos frequently lead to procurement silos. Breaking down these silos and promoting internal collaboration and communication is crucial to developing a successful Supplier Relationship Management process that meets organizational goals and supports business strategy development. Suppliers can become trusted advisors who help the organization avoid unnecessary costs, problem-solve, minimize risks, and increase efficiency.

Silos Impede Supplier Relationship Management

In siloed organizations, managers tend not to share information or pool resources, and they do not collaborate on innovative approaches to obtaining resources. They are more prone to insisting on repeatedly using the same suppliers, which can lead to the exclusion of diverse suppliers, and also higher costs since purchases are not pooled organization-wide. These consequences and others result in a lack of a unified organizational culture. At the same time, procurement seems to constantly be in discussions with silo leaders to explain inefficiencies, ways to cut costs, product innovations, the importance and benefits of supplier diversity, and the availability of new suppliers with new solutions. Procurement is limited in its ability to streamline the purchasing process, lower the risk of price volatility, limit exposure to scarcity of specific resources, and ensure sourcing decisions adhere to the commitment to environmental sustainability. Also significant is that the advantages suppliers can bring the organization as advisors are not realized. In fact, there is a good chance a siloed organization has a siloed supply chain, in which data and other information are maintained in separate pools.

Procurement can best support business goals when it can develop quality supplier relationships. These relationships enable the focusing of resources, a collaboration between suppliers and internal customers, supply chain resiliency, and a high level of flexibility in responding to unit needs without sacrificing alignment with organizational goals. Forecasting is improved, and cost minimization is possible without sacrificing quality or diversity. It is challenging to realize the full power of cultivated supplier relationships when internal customers focus only on their needs, rather than maintaining alignment with other units to achieve business goals.

Breaking Down Silos Through Technology & Communication

Supplier relationship management depends on collaboration between organizational functions, suppliers, and procurement. When internal customers share information and coordinate needs, procurement can take the lead in bringing suppliers to the table to proactively discuss the organization’s challenges. In today’s dynamic, frequently disrupted business environment, organizational leaders and suppliers must have current situational awareness of any crisis, any business changes impacting multiple or all functions, potential or existing supply chain disruptions, or a need for innovation. Good Supplier Relationship Management means conflict is minimized, due to the high degree of collaboration between suppliers and internal customers.

How does an organization break down silos to improve procurement processes, including strategizing? Making information-sharing technology available is one step. Procurement information-sharing technology enables leaders to understand the supply base and gives visibility into spend by designated characteristics, such as diverse spend. Procurement needs the right tools for improving supplier visibility, in order to ensure a holistic picture of factors like ESG and supplier performance is possible. Procurement can align performance and risk with organizational goals and deliver the information across the organization. A centralized system for supplier information helps break down silos, by avoiding managing supplier relationships in silos.

One recommendation for breaking down silos is for the supply chain team to hold meetings with internal customers. These customers should represent every function, including R&D, marketing, operations, IT, finance, legal, sales, and Human Resources. Taking this approach can lead to discussions on (a) the challenges the internal customers could have avoided with a centralized procurement system that drives sourcing and purchasing based on organizational goals and risk minimization and (b) the role suppliers can play when they have the right information and the ability to contribute. Different functions need coordination. For example, in a siloed organization, sales may not have knowledge of a logistics issue causing delayed deliveries.

Supply Chain Team Become Change Initiators

The supply chain team is the leadership team for showing organizational leaders how they can generate more value by working together than by working alone. It takes leadership from the top to start the change process. For example, unit leaders need the right incentives to break down functional silos to improve Supplier Relationship Management. Is compensation tied to unit performance and not organizational performance? Are unit leaders so engrossed in meeting unit targets that they need help understanding how to align their procurement decision-making with overall business goals? Do unit heads worry more about unit performance than adding measurable value to the company? Breaking down internal silos only happens through open communication. Implementing a new procurement system will not be enough if internal customers maintain the same perspective on their own roles, rather than considering the big picture. Procurement must become an initiator of change, making procurement a strategic function. The supply chain collaboration solution and organization-wide procurement information system are vital in enabling this shift.

Breaking down procurement silos sounds complex because it involves changing leadership perspectives, utilizing collaborative technology, and changing organizational practices. However, silos in the organization or procurement are not a good model for meeting organizational goals in a transforming business environment. It is important to develop cross-team transparency and address the silo mentality, which can lead to more successful and productive Supplier Relationship Management. Procurement in the modern organization has a more prominent strategic role in organizational success than in the past, and it can be instrumental in breaking down silos, by beginning with breaking down procurement silos.