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Bubbles and Silos in the Company Process

Updated on April 7, 2017
Katrina McKenzie profile image

As the founder of KLM Audit & Compliance I relieve the stress and worry business people often feel when dealing with compliance issues.

Bursting the Bubble

Next time you are at work, take a look around. How well do the individual departments work together?

Would you say you have a good understanding of how each department works? Or how their roles fit with your own?

Everyone likes to think that their own role is the most important, that the business couldn’t function without their department.

Wrong!

One thing we often see in internal auditing is that each department is working within a silo, staying inside their own little working bubble oblivious to what else is happening around them in the business.

While focusing on the details of whatever it is you do is a good thing, it shouldn’t be at the expense of the big picture.

Regardless of the industry no business can operate with just one department. Even small single operator businesses require you to wear multiple hats as you take on different roles within your business.

The Company's Multi-Department Process

Let’s take a look at a simple example of the steps in manufacturing an existing product and selling it to our customers. Before you even consider making more, you need to determine:

  • how much product you currently have in stock
  • whether it has an expiry date
  • whether it is a seasonal product only required at certain times of the year
  • whether there is a current need for extra to be made
  • whether the business have the resources to make more at this moment.

The above questions are usually reviewed by someone within the planning department. They will also determine how much of the product is to be made and the amount of raw materials that will need to be purchased.

The information is then usually passed to management to approve the production, the purchase of the raw materials and the amount of time and staff required to complete the manufacturing of the product. Discussions with the finance department are usually included at this time to make sure the business has the available funds to complete all the tasks.

Once the planning process is complete and has been approved, the details of the raw material needs are passed to the purchasing department. Here they will have a list of approved suppliers that they use to draft purchase orders to buy the raw materials needed. Again these will need to be approved, generally by management, before they are sent to the suppliers.

After the raw materials have been ordered the finance department need to release the payment to make sure the goods are delivered on time. The financial records need to be updated to reflect how much money the business spent and for what. Later on they will also need to match up this payment with the invoices received as part of their reconciliation process.

So we have ordered our raw materials; the rest should be easy, right?

The suppliers have started to deliver our raw materials so now someone needs to check them to make sure the orders are correct and the goods are in a usable condition. The best way to do this is to compare the purchase orders and invoices with the goods received.

Depending on the size of the business and the type of materials received this could be anyone from the receptionist to warehouse staff or site foreman. In larger businesses, and again depending on the type of goods, you may have one person signing off to confirm the goods were received on site and another checking the quality of the raw materials.

Any paperwork relating to the raw material will need to be kept and copies may need to be sent to different departments to ensure their records are accurate. When there is paperwork involved this is where things can get messy if there is a lack of communication or if you don’t understand why the other departments need them and what time frames they need them in.

You can’t pay an invoice if you don’t know what you are paying. You also shouldn’t accept the goods on site if you don’t know the products and quantities that should be there.

Now that we have our materials we can make our products.

Once again, depending on the size and set up of the business, how raw materials are stored, recorded and distributed for use can be very different. One point that should remain the same is that it should be recorded when each material is used, by whom and how much. Without this information you won’t know what you need when you start the planning process next time you want to make the product.

We start making our product using the work instructions that were developed before we originally began making this product in the first place. The work instructions are used to make sure that every product is made the exact same way and has consistent quality.

Each time someone discovers a way to make the manufacturing process better, the work instructions and other documents for the process need to be updated so they stay current. Your internal audit department can also review the process to make sure the work instructions are actually being followed.

If you are using any equipment to make your products you need to make sure that the equipment is in good working order. The maintenance department needs a schedule in place to test, repair and replace the equipment as necessary. Discussions with risk management and/or internal audit staff can help when making these schedules.

Also any incident that occurred during the manufacturing process, such as breakdown of equipment, the production process not being completed right or injury of staff, would need to be recorded, investigated and resolved.

Before the product can be sold it needs to be checked for quality; you don’t want to be selling an inferior or faulty product.

We now have a finished product sitting in our store room waiting to be sold, but who do we sell it to and for how much?

And It Continues

The "how much" would have been previously worked out by management, again the finance department would be involved to confirm how much it cost you to make the product and how much profit you wanted to make.

Market research conducted by someone involved in research and development would have been needed in the beginning to look at what other similar products were selling for and what people would be willing to pay.

As for who to sell to, your market research would have already looked into that in the beginning so you already know who your customers are. The marketing department will have put together a campaign to target the right customers leaving it up to the sales department to get the product to the customer.

That is a pretty involved process already, but we aren’t finished quiet yet.

Similar to ordering and buying the raw materials, we now have to reverse that process to get the products out of our storage area and to the customer.

Our packing department would need to package up the right amount of each product for the customers. We would need to create invoices that the customer would need to pay. The warehouse would need to confirm that the right products went to the right customer. And our finance department would need to make sure the customer paid and that the payments were recorded and reconciled correctly.

Also, since we had staff making the products our payroll department would need to know who was working and what times they worked so they could be paid for their time.

While all the above is happening there are still some departments working in the background. Two main ones to consider are out IT department who are making sure staff have access to the systems and information they need.

The other is our cleaners. Regardless of if you choose to use internal staff or an external cleaning company, someone has to keep the work space clean, tidy and free from potential hazards.

So Who Was Involved?

Looking at the above example our simple production and sales process has involved the following departments:

  • Management
  • Planning
  • Purchasing
  • Finance
  • Warehouse
  • Quality Control
  • Document Management
  • Production
  • Maintenance
  • Marketing
  • IT
  • Packaging
  • Sales
  • R&D
  • Risk Management
  • Internal Audit
  • Incident Investigation
  • Payroll
  • Cleaning

As you can see every department is involved. If you were to take just one of those departments out of the mix things would get messy very quickly! Control checks could be missed, you might not have the resources you need to finish the production or pay staff, you could be missing sales opportunities, or more importantly you could be selling a product that is not fit for use and could be dangerous.

How Do We Remove the Silos?

Quite often during an Internal Audit if I see there is a breakdown of communication or if staff are unsure of the roles of different areas I will recommend that staff from one department go and shadow staff in other departments for a short time. I get them to go and sit in to see what it is the other staff members actually do. They get the opportunity to ask questions and get a better understanding of how the departments work together.

Essentially they begin to see the business as a jigsaw with all the pieces fitting together to make a whole rather than a collection of individual silos.


Please note: The above article is not intended for use as standalone audit advice.

© 2017 Katrina McKenzie

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    • Katrina McKenzie profile image
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      Katrina McKenzie 4 months ago from Bendigo

      Thank You! Compliance is something I am very passionate about and I love sharing that with others. I am one of the lucky ones who managed to find a career doing exactly what I love. If you have any topics you would like to learn more about I am happy to take suggestions!

    • Fiddleman profile image

      Robert Elias Ballard 4 months ago from Zirconia, North Carolina

      Good hub and a great analysis of how all the functions within any business organization works. Most of us who have worked probably never gave a thought to how each part functions to make everything work and then turn a profit so we could enjoy a paycheck each week. For sure, there is more than meets the eye and the more efficient the machine, everyone wins. Thanks for sharing.