Supply chain leaders cite the increased complexity of supply chain flow as the top challenge they face. A new report, “Managing the Complexity Paradigm," from APICS, and Michigan State University discusses the balance between managing complexity that can increase cost but also has the potential to increase revenue.
The research found that firms are experiencing increased complexity due to a constantly growing number of products, customers, channels, and geographies.
The four primary sources of supply chain complexity are summarized as:
Customer Accommodation: Customers expect ever-increasing speed and visibility of process, and variety and customization of products.
Operations Globalization: As supply chains expand into more varied global customer markets, substantial variations in existing supply chain processes must occur.
Supplier Complexity: Globalization means developing and maintaining strategies to overcome the complex and often serious issues associated with local sourcing.
General Business and Supply Chain Trends: The industry push to omnichannel supply chains is exacerbated by day-to-day business concerns, like technology turnover or company mergers.
In addition to asking research participants what issues related to complexity they were facing, the research team also focused on how respondents were managing this supply chain complexity. The solutions have ranged across: 1) avoidance; 2) relationship collaboration; 3) information technology; 4) flexible workforces; 5) supplier collaboration; 6) access to leadership: and 7) supplier/customer understanding.
The leading approach to addressing complexity was, not surprisingly, to avoid it in the first place. While the respondents do not believe that such an approach is easy, they did provide some ideas regarding how to avoid complexity. One such idea was to increase understanding of how the supply chain creates either internal or external value propositions. Once this is accomplished, effort can focus on insulating those value propositions from the negative effects of unnecessary complexity—or worse yet, from the erosion of these value propositions on the way to reducing complexity elsewhere.
In one unfortunate situation, the executives described how the firm was working to reduce complexity in marketing and as a result, the supply chain value stream was negatively impacted—making things worse rather than better. Broadly speaking, it’s important for supply chain management to discuss the potential modification of business-level strategy, objectives, and processes to make sure the firm is still able to deliver value to both internal and external customers throughout the change and under the new approach.
The research participants offered many comments regarding the relationship of their supply chain partners to the degree of complexity. Again, while this is possibly an obvious recommendation on the surface, respondents found that the better the partners in the relationship were, the easier it was either to limit or to address supply chain complexity issues. Specifically, they discussed ways good partners helped them address complexity by enhancing product and process innovation.
Our research partner firms definitely viewed technology as a way forward in complexity reduction, specifically in using technology to simplify processes. They cautioned that, as we well know, adopting technology for technology’s sake often ends badly. However, when the technology and the firm’s processes are fit to each other, it is possible to achieve significant positive results.
Many of the firms described how they reduced complexity using more flexible workforces. The application of flextime, contingent labor, and part-time staff allowed the firms to simplify their operations, which reduced complexity. Another approach used by the firms was to develop multi-skilled talent to reduce the handoffs between workers that create opportunities for breakdowns to occur. This was accomplished through the use of formal training processes that rotate employees through multiple tasks. The formal rotation also helps identify situations where complexity occurs as the result of siloed staff not understanding the entire process.
One of the research participants told us, “It sounds hokey, but...work with good people.” In this case, the respondents were specifically talking about their suppliers—how they strove to build integrity across their supplier relationships, promote transparency (as much as they could) across the partnerships, and foster trust between themselves and their partners. They conceded that it isn’t easy and the “almighty dollar” has its say, but that long term, without these qualities trouble will ensue. They pointed out that transparent collaboration between a firm and its partners opens up opportunities to reduce the processing exceptions that introduce complexity.
Access to Leadership
The respondents also indicated that having the right people in the room, at the right time, is critical. There are times in a relationship—certainly early on, and possibly at other waypoints—when the CEO must be there to make it happen. CEOs can’t be hanging around all the time, nor do they want to be, but at certain points they need to be present to set the tone and lead the organization. Similarly, director-level staff may need to touch base at the right points in either a process or a relationship when the day-to-day working-level managers need them in the room.
Further related to supplier collaboration, the firms we interviewed indicated that complexity is reduced through possessing a better understanding of how a firm’s processes impact its suppliers. Research participants related how, as suppliers, they often felt their trading partners were unaware of or unreceptive to how customer demands affected the complexity of their operations. Conversely, respondents also indicated that suppliers needed to better understand how their output—their particular product or service—was integrated into the overall value proposition of the final good or service. If suppliers better understood the role their output created, they’d be better positioned both to help deliver the best possible product and to do it in a manner that smoothed the flow and reduced complexity along the way