Complexity and the Supply

Chain
Topic
5
The sources of supply chain complexity
1. Netwoík complexity- The m o i e no des a n d links t h a t exist in a
n e t w o i k t h e n cleaily th e m o i e complex it becomes. As a iesu lt o f
o u t s o u i c i n g n o n - c o i e activities ma n y co mp ani es a i e t o d a y m u c h
m o i e i e l i a n t o n e xte in al s u p p l i e is o f g o o d s a n d seivices
2. Píocess complexity- U n d e i p i n n i n g eveiy supply c h a i n a i e
i n n u m e i a b l e piocesses – piocesses i n t e i n a l t o t h e fi i m as well as
those piocesses m a n a g e d by u p s t i e a m a n d d o wn s t i ea m p a i t n e i s .
O f t e n these piocesses have been developed in a h a p h a z a i d way a n d
have been a d d e d t o a n d mo d i fi e d t o i e fle c t c u i i e n t i e q u i i e me n t s a n d
as a ies ult have become m o i e complex. This complexity is manifested
in piocesses with multiple steps, o f t e n p e i f o i m e d in seiies i a t h e i
t h a n in paiallel.
3.Range complexity- Mo s t business o i g a n i s a t i o n s fi n d t h a t t h e i a n g e o f
p i o d u c t s a n d / o i seivices t h a t they o f f e i t o t h e m a i k e t has a te nde nc y t o
g i o w i a t h e i t h a n ieduce. The i a t e o f i n t i o d u c t i o n o f new p i o d u c t s o i
seivices, new p a c k sizes o i v a i i a n t s a n d b i a n d extensions seems t o
o u t p a c e t h e i a t e a t which existing p i o d u c t s o i seivices a i e eliminated.
The ge n e ia l effect o f this m u s h i o o m i n g o f t h e p i o d u c t / s e i v i c e p o i t f o l i o
is t o extend t h e ‘long tail’ o f t h e Paieto d i s t ii b u t i o n .

4.Píoduct complexity- The design o f p i o d u c t s c a n have a sig nifica nt

i m p a c t o n supply c h a i n complexity. It c a n b e a i g u e d t h a t t h e supply
c h a i n begins o n t h e d i a w i n g b o a i d in t h a t decisions o n t h e choice o f
ma t e i i a l s a n d c o m p o n e n t s c a n diiectly o i indiiectly i m p a c t t o t a l life
cycle costs as well as agility a n d iesponsiveness.
5.Customeí complexity- C u s t o me i complexity aiises as a i esul t o f t o o
ma n y n o n - s t a n d a i d seivice o p t i o n s o i customised solutions. The costs
o f se ivin g di f f e i e n t c u s t o m e i s c a n v a i y significantly. Each c u s t o m e i will
exhibit d i f f e i e n t c h a i a c t e i i s t i c s in t e i m s o f t h e i i o i d e i i n g p a t t ei n s , e.g.
f i e q u e n c y o f o i d e i s , size o f o i d e i s , deliveiy i e q u i i e me n t s a n d so on.
These diffeiences will b e incieased f u i t h e i as a i esu lt o f t h e availability
o f d i f f e i e n t seivice o p t i o n s o i packages a n d / o i cu sto misa tio n
possibilities

6.Supplieí complexity- The size o f t h e s u p p l i e i base c a n a d d t o supply

c h a i n complexity by i nci easi ng t h e n u m b e i o f ielationships t h a t must b e
m a n a g e d as well as inc iea sing t o t a l t i a n s a c t i o n costs. Because on e o f
t h e pi e-ie qu isite s f o i agility is a h i g h level o f col lab oia ti ve w o i k i n g with
key supplieis, this implies a h i g h level o f active s u p p l i e i ma n a g e me n t
a n d s u p p l i e i involvement in pio cess integiation. It is unlikely t h a t this
d eg iee o f closeness c a n b e achieved a c i o ss a diveise s u p p l i e i base
a n d hence t h e need f o i iationalisation. The implications o f such a
supply base i a t i o n a l i s a t i o n a i e p i o f o u n d .
7.Oíganisational complexity- M o s t businesses have t i a d i t i o n a l l y o i g a n i s e d
a i o u n d f unc t ions a n d d e p a i t m e n t s a n d t h e i i o i g a n i s a t i o n c h a i t s have
m a ny levels a n d t e n d t o b e h i e i a i c h i c a l in t h e i i s t i u c t u i e . Such ‘veitical’
o i g a n i s a t io n al a i i a n g e m e n t s a i e n o d o u b t administiatively convenient in t h a t
t h e i e c a n b e a ‘division o f l ab o u i ’ between f u n ct i o ns as well as effective
b u d g e t a i y cont iol. Howevei, they t e n d t o i nh i b it agility because they aie, o f
necessity, inwaidly looking with a focus o n efficiency i a t h e i t h a n c u s t o m e i
f ac i ng with a focus o n effectiveness. A f u i t h e i p i o b l e m is t h a t o v e i time t h e
f un ct io ns have a t endency t o become ‘silos’ with t h e i i own a g e n d a s a n d they
c a n lose sight o f t he f u n d a m e n t a l p u i p o s e o f t h e business, i.e. t o win a n d
keep p i o fi t a b l e customeis.

8.Infoímation complexity- Today’s suppl y chains a i e u n d e i p i n n e d by t h e

exchange o f i n f o i m a t i o n between all t h e entities a n d levels t h a t c o m p i i s e
t h e complete end- t o- end netwoik. The volume o f d a t a t h a t flows in all
d i i e ct i o ns is immense a n d n o t always a c c u i a t e a n d c a n b e p i o n e t o
m i s i n t e ipi et at ion. Visibility o f a c t u a l d e m a n d a n d supply c o n d i t i o ns c a n b e
o b s c u i e d t h i o u g h t he way t h a t i n f o i m a t i o n is fi l t e i e d a n d m o d i fi e d as it
passes f i o m one entity o i level t o a n o t h e i
Product design and supply chain complexity
● Time-to-market and time-to-volume
Decisions on the functionality of products can increase manufacturing complexity and reduce
flexibility and responsiveness
● Added complexity through lack of commonality
Decisions on product design impact the Bill of Materials. Low levels of component
commonality will add complexity.
● Increased replenishment lead times
Some design decisions will determine the choice of supplier and therefore could impact
replenishment lead time, e.g. where the supply source is offshore.
● Supply chain vulnerability
Again, if the design decision involves unreliable supply sources this could potentially increase
the chance of supply chain disruption.
● After sales support
For those products requiring after sales support, e.g. service parts, the design of the product
will have implications for inventory levels.
● Late stage customisation
The ability to postpone the final configuration or the packaging of a product will be enhanced
or constrained by product design decisions.
 Mastering complexity
The first step in managing supply chain complexity is
to understand where it is coming from. A good
starting point to identifying the source of complexity
is to review the eight categories previously
identified, i.e. network, process, range, product,
customer, supplier, organisational and information
complexity.
Mastering complexity
It shoul d howevei, be iec og n i se d t h a t n o t all complexity is bad. In some
iespects it is t h i o u g h complexity t h a t o i g a n i s a t i o n s di f f ei e n t i at e
themselves f i o m t h e i i c omp e t i t o i s.

The challenge f o i supply c h a i n m a n a g e i s is t o u n d e i s t a n d t h e value t h a t

c u s t o me i s seek a n d t o fi n d ways t o delivei t h a t value with least complexity. Also
it c a n be aigued, p e i h a p s paiadoxically, t h a t a focus o n complexity
i e d u c t i o n c ould inciease suppl y c h a i n iisk.