Aligning purchasing (procurement), distribution, and sales means treating these traditionally separate functions as one integrated supply-chain team, all rowing toward the same goal: delivering the right product, in the right quantity, at the right time, to the right customer—while maximizing overall profitability. Rather than measuring success by narrow departmental KPIs (e.g., lowest COGS, fastest outbound shipments, or highest sales margin), alignment shifts the focus to the company’s bottom line, ensuring decisions in one area don’t inadvertently drive costs or inefficiencies elsewhere.
The Three Silos—and Their Conflicting Priorities
- Procurement Goals: Source products at the lowest landed cost; maintain sufficient stock; minimize inbound freight; boost inventory turns. Typical Incentives: Bonuses for reducing COGS or improving turns.
- Distribution Goals: Receive and validate inbound stock; house/manage inventory; fulfill outbound orders accurately, on time, and at minimal cost. Typical Incentives: Rewards based on on-time service levels, order accuracy, cost per line shipped, and inventory accuracy.
- Sales & Marketing Goals: Maximize sales volume and margins; differentiate offerings; ensure customer satisfaction; launch and promote new products; build brand visibility. Typical Incentives: Commission or bonuses tied to sales margin and revenue targets.
When each silo optimizes its own metrics in isolation, decisions can “pass the buck” of hidden costs to other departments—eroding overall CORPORATE profit.
How Siloed Decisions Backfire: Two Illustrative Examples
Example 1: A 4% “Win” Turns into a 3% Loss
- What Procurement Did: Switched core SKU’s sourcing from a U.S. vendor to an overseas supplier, saving 4% per unit on landed cost.
- Unintended Distribution Impacts: Manual unloading and relabeling of non-palletized cartons. Damage rates leapt from 0.25% to 5% Inventory turns plunged as order quantities rose to fill containers and qualify for lower product cost Extra labor, packaging, and storage costs soared
- Hidden Sales Impacts: Customer confusion over new packaging. Support calls and return rates spiked. Sales teams and marketing had to re-educate clients
- True Outcome: Once all additional logistics and customer-service costs were folded back into COGS, true landed cost rose by 7%, and the company suffered a net 3% margin loss.
Example 2: A Flash Promotion That Blew Up Operations
- What Sales & Marketing Did: Ran a surprise two-week, deep-discount campaign on a key product line—featured on the website, blasted via email, and incentivized the sales force.
- Unintended Procurement & Distribution Impacts: No DC preparation: stockouts, backorders, and split shipments doubled handling and shipping costs. Procurement scrambled to expedite replenishment at premium freight rates. Warehouse consumables and labor usage spiked beyond budget
- True Outcome: While gross sales temporarily rose, gross margin fell, operating costs jumped, and profit per order declined.
Breaking Down the Silos: A Collaborative Playbook
- Shared Planning Forums Hold weekly or biweekly cross-functional meetings—including procurement, distribution, sales, marketing, and finance—to review forecasts, promotions, new products and supplier performance. Be very focused on new products, initial buys, inventory details, and exit strategy for product that does not sell.
- Unified Metrics & Incentives Shift from silo-specific KPIs to enterprise metrics (e.g., true landed cost, overall inventory turns, net operating profit). Design incentive structures that reward improvements in corporate profitability, not just department goals.
- End-to-End Cost Visibility Calculate and communicate all costs—storage, handling, labeling, returns, customer support—so every team understands the downstream impact of its decisions. Treat every vendor as a “client” of the distribution and operations teams: set and enforce vendor-compliance standards (packaging, labeling, carton dimensions, UOMs).
- 3PL Mindset for In-House Operations Like a third-party logistics provider, map every service to a dollar value: per‐touch handling, per‐location storage, inbound and outbound freight, special packaging, value-added services. Only take on products or programs when their full costs—and margins—are transparent. This includes a return process / policy for underperforming new products
Redefined Priorities for Each Discipline
- Procurement: Implement a robust vendor-compliance program (carton specs, labeling, pallet requirements, volumetric data). Base sourcing decisions on true landed cost (ready for put-away in the DC – regardless if the responsibility to get an item to that level is directly from the vendor or the corporate internal resources provides this function.
- Factor in return rates and obsolescence when negotiating price breaks, especially for new items. Carefully assess if paying more for better packaged, prepped, and delivered product is actually better financially than just a lower priced product.
- Distribution: Record and share per-order and per-line processing costs. Focus on any value-added services or customer compliance requirements and the true cost impact to the operation (and bottom-line profit). Automate value-added services where possible. Define and publish realistic service-level commitments for sales, along with pricing matrixes for value added services.
- Sales & Marketing: Involve procurement and distribution in all campaign planning and forecasting. Align pricing and promotions to stocking UOMs (see below). Forecast lift and lead times for new-product launches; build in buffer for operations.
Joint Initiatives to Keep Inventory Lean
- Active Excess & Obsolete (E&O) Program: Inventory carrying costs typically amount to 20–25% of value per year. Create structured E&O clearance: discounts, spiffs for sales/CSRs, fire-sales, jobbers, donations, or write-offs. Track both item-level, item cube (eating up warehouse space) and overall carrying-cost impacts to prioritize disposition.
- Align product unit of measure with pricing / quantity discounts Marketing and sales pricing should be tied to actual product units of measure, such as an each, box, case, and pallet, this eliminates extra labor, handling, and packaging costs in the distribution operation. Example – why have a price break on 10 units when the product comes in a standard box of 12? Having the distribution operation break open the box, possibly bag and label the items, etc.… adds labor and consumable costs. The same goes for a case or pallet quantity. Give visibility and offer discounts to incentivize the customer to go to the larger quantity / unit of measure.
Aligning purchasing, distribution, and sales transforms three isolated silos into one agile, profit-focused supply chain. With shared visibility, unified incentives, and collaborative planning, organizations can avoid costly surprises, optimize working capital, and deliver superior customer value—boosting both top-line growth and sustainable margins.
