Is Bureaucracy necessary?
It is everywhere in large organizations - it arises out of a need to standardize, reduce variance, consolidate information, coordinate action and in those roles generates benefit and value. But is it really necessary?
For example, there are the Chinese Shanzai which are the small specialty manufacturers that will produce anything you ask and do so by coordinating (dynamically based upon capacity, capability and availability) among themselves all of the components and final assembly – without any contractual relationships and totally based upon reputation and verbal commitments. The prime reason is that they have no recourse to the legal system (being somewhat loose with IP issues) but also because it has given them competitive advantage against traditional manufacturing ecosystems. Are there lessons to be learned from them?
Is it necessary ? The simple answer is it depends on the business how much can the business afford to examine every detail and solve it "with" the supplier.
I have been in fashion industry where the company had the aim to develop its brand and design its collections but distribute tasks of manufacturing to local factories. They were very good without any contracts until margins have shrinked to satisfy their supplier. It is then they introduced informal contracts to keep up with what they agreed upon with their new suppliers since they lost some of their old valued friends.
They can't introduce formal contracts because they don't want to be involved in the legal system known to be ineffective and same company above with IP issues.
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