Visibility of complexity

According to Professor David Simchi-Levi from MIT in Boston, there are six trends that are challenging current thinking on supply chain management: globalisation, the increasing cost of logistics, higher levels of risk in the chain, increasing cost of labour in developing countries, the focus on sustainability and the fluctuation of the cost of raw materials. One important thing that these six trends imply is the need for transparency in the supply chain. Simchi-Levi sees three different levels of transparency: where my products are in the chain, having access to the suppliers’ production schedules and track & trace using sensors on the products, pallets or packaging.

These six trends make supply chain management even more complex. In a new management book ‘Simply Effective’, author Ron Ashkenas describes four things that cause organisational complexity: structural fragmentation (constant changes within the organisational structure), increased product proliferation (the extension of product lines and services), the evolution of processes and technology and management behaviour. Many companies underestimate the extent to which an ever-growing number of stock keeping units (SKUs) leads to increased organisational complexity as well as increased costs. Rationalisation and reductions of the brand and product portfolio is therefore a logical step towards reducing complexity.

Another way to combat organisational complexity is by simplifying the processes and Ashkenas describes five methods in his book: identifying best practices, identifying processes and redesign, Six Sigma and Lean, so-called rapid-results projects and lastly, the work-out approach with a large group of employees. Each of the five methods has its own speed, technical impact and staff involvement. However, this doesn’t make it easy to decide which method to employ.

I read an interesting chapter about managing product, organisational and process complexity in the annual release of ‘Winning in Turbulence’ from the ‘Memo to the CEO’ series. According to the author, Darrel Rigby from Bain & Company, you need to combat product complexity first, followed by organisational complexity and then process complexity. If you try to simplify the processes without having improved product and organisational complexity, you will only end up creating more complex processes in other areas.

Reducing complexity in a supply chain that just keeps on growing is a must. It makes them more transparent and improves a company’s ability to react. It’s simple.

Martijn Lofvers, Publishing Director & Chief Editor, Supply Chain Movement
martijn.lofvers@supplychainmedia.nl