Blast the silos to unlock potential

Customers want good parts delivered on time, and so should employees

THE FABRICATOR® SEPTEMBER 2013

September 5, 2013

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In a company with silos, departmental functions rarely interact, and workers within those departments are focused solely on their core assignments. These silos perpetuate inward thinking, turf protection, and subpar results for customers. To improve, an organization needs to tear down these structures.

Blast the silos to unlock potential - TheFabricator.com

You look at the phone ringing on your desk, and you know who it is. There’s a critical late order you’ve been firefighting all morning. Tempers are running hot at production meetings. Machines are running all the time, and shop floor personnel are as busy as ever. It’s just a capacity issue, right? So you run another shift. Soon you find costs are rising faster than revenue—not good. What happened?

Life is challenging enough running a manufacturing company, but many leaders make the challenges even more difficult from self-imposed processes and systems. Silos begin to appear (or more likely, the silos were there all along but not recognized) and dictate how leaders, managers, and even front-line employees relate to one another across functions.

This matter is as relevant for the small job shop as it is for the large OEM. Take a look at your organization chart and ask yourself, Does my business operate vertically within the functional silos, or does it operate horizontally and smoothly across functions?

Thoughtful leaders who recognize the negative impact of silos, take actions to execute horizontally, and manage their business processes effectively can unlock organizational potential and better serve customers. After all, no one looks forward to the ringing-phone scenario.

What Are Silos, Really?

In an actual silo, one kind of grain goes in the top and out the bottom. The metaphorical silo in a manufacturing company contains a function like engineering, operations, or accounting—one type of grain, so to speak. Traditionally, direction comes from the top, the department head, and those below execute it. They operate within the silo wall and really don’t venture outside of it—for good reason. Their boss judges their performance by silo-specific metrics, like machine efficiency for operations people or per-piece cost for purchasing personnel.

Eric Miller, vice president of sales and marketing at Miller Welding and Machine Co. in Brookville, Pa., agrees that silos are disruptive. “Although our company is still in the early phase of our lean journey, we have come to recognize the impact silos have on our business. The silos build up over time and become ingrained. It is almost as if they are invisible forces that get in the way of progress.”

Miller and many other companies like it offer a variety of processes: cutting, bending, and welding; machining; cleaning, blasting, and coating. When customers work with a contract manufacturer like this, they don’t think about the efficiency numbers at the laser cutting machine or press brake. They don’t think about what the material costs, or the shipping and logistical considerations farther up the supply chain. What they want is a quality part, subassembly, or product delivered on time for a competitive price.

Employees working in silos don’t see this. Silos perpetuate inward thinking, turf protection, and subpar results for customers. A machine may have a stellar uptime metric, or a purchaser may have landed an amazing deal on a batch of material, but if quality parts aren’t delivered on time, the customer really doesn’t care. Moreover, many customers expect year-over-year cost reductions. Silos make it difficult to achieve satisfactory performance given your savvy customers’ demands (see Figure 1).

How Meetings Become Shouting Matches

You hang up the phone and put your head in your hands. Another angry customer. You sigh, then call an emergency meeting that quickly breaks down into a shouting match. Sales, procurement, operations, and finance people—they’re all pointing fingers. Why the frustration? It’s because every one of them has performed impeccably, at least from their inside-the-silo perspective. They’re doing their jobs well, at least according to the performance measures they’re given.

Here’s a taste of what each person in the meeting is thinking about inside his or her silo, and the troubles that can arise:

  • Sales: Get it sold! They need to get the order regardless of lead-times, capacities, and other operational limitations. But when they sell without considering the company’s ability to deliver, they run the risk of a dissatisfied customer or other functions expediting or performing heroic actions that cause disruptions and unexpected costs.
  • Procurement: Optimize the unit cost! The buyers have purchased-part cost-reduction goals, and they will seek to fulfill the performance metric by driving down the purchased costs. The silo problem emerges when the cost-reduction metric is based on individual unit cost rather than total delivered cost. This causes them to do whatever it takes to reduce that unit cost, even if it means increasing other costs like logistics or tariffs, or causing operational problems by, say, ordering in bulk. The buyer may have gotten a great deal on material, but the company may also be drowning in inventory and bleeding cash.
  • Finance: Optimize the freight costs! The way to drive down logistics costs is to reduce the number of miles driven. You reduce miles driven by reducing the frequency of deliveries and increase the size of the loads. This might appear reasonable to the people in finance, but it is disruptive to the people in operations who need to store all the material and deliver parts in the most effective way for operators and assemblers—the very people who are adding value.
  • Operations (planner): Don’t run out! The planner takes lots more heat for running out of something than for having too much of something. If he runs out, the operation stops; while if he has too much, he has poorly utilized space and underutilized working capital. Nevertheless, if he produces too much inventory, the operation still can be short of parts that are actually needed.
  • Operations (materials): Optimize floor space! The material handlers want to lay out the space to make it easy for them to store and access materials. Additionally, they can reduce their work by moving large quantities in large containers. This becomes problematic if it is inconsistent with the way material is consumed.
  • Operations (production): Run as much as possible! The operations people say once the job is set up, run as much as possible to spread fewer setups over more pieces. With machines running almost continuously, supervisors and managers earn the maximum number of standard hours and elevate efficiency metrics.

These are not bad, untalented, or disengaged people who don’t care about frustrated customers calling about late orders. Rather, they are people working in processes and systems that deteriorate over time. All look inward and make life easiest for themselves and other people within the silo. But when the silos rule, the ringing-phone scenario ensues.

Horizontally Focused Organization

In a horizontal organization, it’s not about me or my department (that is, the silo); instead, it’s about us. Consider the same scenario, but now without the silos (see Figure 2):

  • Sales: Sell, but consider our ability to produce. Gaining a new order commitment includes understanding its effect on operations and the ability to fulfill customer expectations (schedule, quality, and cost). The salesperson or order-taker should think about the company’s ability to fulfill the customer’s needs before committing to unrealistic expectations.
  • Procurement: Determine unit cost and negotiate operational requirements. Procurement personnel evaluate the procurement transactions relative to total landed cost, negotiate based on your operation’s needs (parts delivered and presented in a way most favorable to your value-added workers’ needs), and leverage the strengths of the suppliers.
  • Finance: Determine freight costs. Strike a balance between driving freight costs down and getting material in a way that optimizes your space utilization and throughput capabilities. Consider smaller, more frequent deliveries using milk routes to strike the balance.
  • Operations (planning): Level load as much as possible. Planners can influence the loads on workcells. By level loading, the plant can achieve better utilization of resources and avoid a chaotic whipsaw of peaks and valleys.
  • Operations (materials): Optimize floor space. The materials personnel can make life easier for those in production by, for example, tailoring the way parts are presented, be it in a certain quantity, orientation, or in groups or kits.
  • Operations (production): Run to a schedule or pull signal. Production produces to replenish to customer needs instead of running machines to maximize for internal performance measures. By running smaller quantities based on customer replenishment, the plant will have a tighter grip on product and process variation, and be able to respond quickly to customer needs.

Would these actions have preempted the problems illustrated in the ringing-phone scenario? Perhaps. The important takeaway is that manufacturers must manage processes—both widget-making production processes and information-based business processes—in a way that’s consistent with horizontal thinking: no silos, no turf protection, no optimizing a certain process at the expense of the whole.

How to Blast the Silo

Horizontal thinking is not an easy concept for most people to grasp. Yet it is a powerful concept that enables you to be less reliant on vertical structures and more reliant on cross-functional relationships focused on serving the customer. Ways to sustain include creating relevant metrics that cross boundaries, design shared accountabilities, and reinforce cross-functional actions at every opportunity.

Leaders can set the stage for alignment among all departments, be they the front office or shop floor. They can communicate a consistent message with periodic all-hands meetings, publicly recognizing and reinforcing initiatives that support alignment, and communicating a common set of operating principles around which the company can rally.

First, consider employee performance. Performance metrics will drive behavior. The question is, Do our performance metrics drive the right behavior? Linking front-line metrics to executive metrics will help create a sense of purpose and reduce the “me” focus.

The goal is to shift everyone’s perspective away from the silo and toward the customer. Such change requires executive horsepower; it cannot be started and sustained from the bottom up. Performance metrics should focus on fulfilling customer needs and company profitability, not just the efficiency of a certain machine or process.

If an operations employee’s performance is judged primarily on machine efficiency and avoiding downtime, he may keep machines running. His efficiency number will shine, and he’ll look good. But the practice also floods the floor with work-in-process, increases overall inventory, and ultimately hinders throughput. Customers complain about late orders, but the operations person feels he’s just doing his job. That’s why his performance measures need to change.

Every action in a company somehow ties to serving the customer, both external and internal. Most work cuts across functions at some point. Everyone should understand who their internal customers and suppliers are and be accountable to them. This will help to foster the breakdown of silos.

To illustrate this, try developing value-stream maps for products or product families so that employees understand the operation’s sequence and how support functions affect it. This will be eye-opening for many people, because they will begin to see the bigger picture as it relates to customers, suppliers, and the company’s internal processes within the value streams.

Admittedly, a traditional value-stream map may not be practical in, say, a high-product-mix, low-volume job shop. Still, every part probably is cut, and many parts deburred, bent, and welded. A map can help define the details of the processes to show interactions, hand-offs, and improvement opportunities. Involve people working in those processes to document and analyze the way they work.

Look at processes that span functional and departmental boundaries. You may be able to decrease waste by, for instance, eliminating duplication, and increase velocity by fostering collaboration among departments. Say the engineering and programming departments review a job, then send the job to purchasing. That job might be processed faster if engineering, programming, and purchasing worked as a team.

As you begin to blast the silos, many will resist change. You may need to change job descriptions and reporting relationships. New accountabilities will make some people uncomfortable. That’s because a culture of a silo-based company is substantially different than that of a company that operates horizontally.

The Phone Rings, and No Problem

The day starts with your executive staff meeting where all the functions are represented. The executives are cordial and open with one another. There are no turf games. The group reviews the company’s executive-level performance metrics. Most of the metrics are shared by at least three of the functional leaders. Where there is deviation from expectations, the group goes through a problem-solving method in which all are vested in successful outcomes.

The plant manager conducts the daily production meeting, which involves employees from operations, scheduling, materials, and engineering. They focus on how the shop performed yesterday, what they need to do today, and what issues they anticipate for the next couple of days. There is no finger-pointing. People come prepared to answer questions and address issues. The tone of the meeting is all about getting the job done for the customer. Emotions are in check.

Midmorning the phone rings—but this time, the response is different. A customer conveys his concern about a problem with product fit-up. This sends the company into action. The customer service person serves as a focal point to coordinate an initial response between engineers and operations to assess the validity and magnitude of the fit-up issue. Everyone goes into the investigation with an open mind and with problem-solving intent. The customer’s engineering or supplier development personnel are brought into the loop to confirm the findings and agree to corrective action, as necessary. The boundaries fade as all parties seek out root causes and appropriate countermeasures.

After lunch there’s another meeting, not in reaction to a customer complaint. Instead, a cross-functional kaizen team—including staff from operations, engineering, maintenance, and accounting—works on a process flow issue. Using current-state analysis and data, they develop an objective assessment and identify potential solutions.

Job titles and organizational affiliations are checked at the door. Everybody comes to the event with a customer focus and “what is best for the company” mindset. They develop a plan, and they implement what they can and seek approvals from leadership as necessary for funding or potential conflict resolutions. Organizational boundaries, whether functional or hierarchical, do not get in the way of solving the problem. Serving the customer is the common denominator for all.

There are no major disruptions or firefights. People are working to anticipate issues and resolve problems in a positive way. Processes are executed with smoothness and precision. Why? The silos have been blasted.



Jeff Sipes

Principal
Back2Basics , LLC
9250 Eagle Meadow Dr.
Indianapolis, IN 46234
Phone: (317) 439-7960

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