When visiting companies to talk about supply chain management and the challenge to stay competitive, I often hear people say their everyday life has become more complex. So the question becomes – is it possible to influence the complexity of a supply chain to gain competitive advantage? The answer is yes.
One cause of complexity is that many companies – led by the pressure to stay cost-effective and competitive – operate more globally than before. Some outsource products or processes, establishing production in low-cost countries such as China or Eastern Europe. The effect is that different companies, cultures, products and processes need to be aligned.
At the same time as the structures of the supply chain are becoming more complex, customers are requesting dedicated products and short delivery times. This puts pressure on new product introduction and time to market, which in many cases leads to an expanding product portfolio with all the related data handling, purchased parts documentation, new suppliers and so on that need to be controlled.
All of this influences the complexity of supply chains.
Supply chain complexity can be seen in two ways. The first is to look at complexity arising from the structure of the supply chain. This is called hard complexity, and it affects the number of suppliers, factories, product variants and the speed of new product introductions.
The second way to see supply chain complexity is via soft complexity. For example – how do employees experience the daily work environment? Statements such as ”it”s difficult to get my job done because so many people need to be involved” or levels of exceptions can indicate the degree of complexity in a supply chain.
Often, supply chain complexity is addressed by looking only at hard complexity – for example standardising products, postponing product dedication and thereby reducing inventory, simplifying planning and production and so on. But it is important to evaluate both angles to understand and be able to influence the complexity of a supply chain.
Soft complexity in terms of culture, competencies and knowledge management can be just as important as the structural elements of a supply chain.
It seems that companies are doing well at synchronising their activities and business processes across customers, production and sourcing activities. The focus is on relationships and cooperation, investing in relationships and even on developing the businesses of suppliers and customers.
Companies also invest in tools for integration and handling of business processes – for example product life cycle management tools. In manufacturing and the supply chain, investment is made in performance improvement initiatives such as flow production and tools for integration such as advanced planning systems.
On top of these initiatives, there is continuous synchronisation between the three areas of market, products and the supply chain.
As most of the cost and complexity in a supply chain is related to the structure of products and processes, supply chain functions need to be involved as early as possible in the product development process. A simple tool for product focus is to make supply chain complexity visible through a so-called product wall, visualising the complexity of products. This will also help in the reusing of components and modules.
So, influencing supply chain complexity needs a cross-functional approach.
Henning de Haas is senior business consultant at Minerva Denmark