Reducing Supply Chain Complexity

Stephen DeAngelis

September 12, 2011

In a post written last month, noted supply chain analyst Lora Cecere discussed the complexity she perceives in many corporate supply chains. “They are a tangled and knotted mass,” she writes. “For many of us, they appear to be very complex. The move to global has made it worse.” [“Untangling the Chains,” Supply Chain Shaman, 8 August 2011] Numerous analysts believe that reducing supply chain complexity is essential for success in the years ahead. Dan Gilmore, Editor-in-Chief of Supply Chain Digest, writes that he once heard a PepsiCo supply chain executive declare, “Complexity is like a cancer that destroys supply chain efficiency.” [“Supply Chain Complexity Crisis,” 12 June 2008] I don’t think the analysts really believe that they can reduce supply complexity for growing and expanding companies. Things that increase supply chain complexity include: global sourcing; new SKUs; natural and manmade disasters; compliance requirements; transportation availability; rising commodity prices; consumer preferences; and so on. I don’t see many of those kinds of things getting less complex. The obvious way to reduce complexity is to regress rather than grow. No profit-minded CEO thinks that is a very good idea. Does anyone really believe that complexity is going to be reduced? If, like me, you believe that answer to that question is “no,” then you have to ask yourself, “What are the analysts really trying to say?”

 

I believe they are saying that supply chain professionals need tools that can help them make sense of the complexities they face. Supply chain data presented in a user-friendly way to decision makers provides the perception of reducing complexity without having to shrink the business to accomplish it. Cecere indicates that another way to reduce complexity is to recognize that your company really has more than one supply chain. By parsing those supply chains into their natural segments, they become more easily understood and managed. She writes:

“Over the past seven years for 90% of companies that I work with deal with this tangled mess as one; yet, supply chain professionals know intuitively that they do not have just one supply chain. They also know that if they could unravel them, that they could drive higher levels of supply chain performance.”

Paul Childerhouse and Denis R. Towill believe that there are twelve rules that can be applied to help companies achieve a “fully integrated, effective supply chain.” They claim, that “the solution has been renamed, repackaged and adapted many times over the years, but what remains constant are the underlying principles of simplified material flow.” [“Simplified material flow holds the key to supply chain integration,” Omega, Volume 31, Issue 1, February 2003, Pages 17-27] As the title of their article indicates, their twelve rules are aimed at simplifying material flow. They are:

  1. “Only make products which can be quickly despatched and invoiced to customers.
  2. “Only make in one time bucket those components needed for assembly in the next period.
  3. “Streamline material flow and minimise throughput time, i.e., compress all lead times.
  4. “Use the shortest planning period, i.e., the smallest run quantity which can be managed efficiently.
  5. “Only take deliveries from suppliers in small buckets as and when needed for processing and assembly.
  6. “Sychronise ‘Time Buckets’ throughout the supply chain.
  7. “Form natural clusters of products and design processes appropriate to each value stream.
  8. “Eliminate all uncertainties in all processes.
  9. “Understand, document, simplify and only then optimise (USDO) the supply chain.
  10. “Streamline and make highly visible all information flows throughout the chain.
  11. “Use only proved simple but robust decision support systems.
  12. “The operational target is to enable the seamless supply chain, i.e., all players ‘think and act as one’.”

Even though Childerhouse and Towill wrote their paper back in 2003, some of their rules have continued to resonate through other analytic studies. For example, Rule 7 — form natural clusters of products and design processes appropriate to each value stream — gels nicely with Cecere’s assessment that companies need to untangle their supply chains. Childerhouse and Towill sensed that the rule was so important that they collaborated with James Aitken and Martin Christopher and conducted another study that focused on its application. [“Designing and Managing multiple Pipelines,” Journal of Business Logistics, 26 (2), 73-95, 2005] Simon Ellis, from IDC Manufacturing Insights, reports that supply chain segmentation isn’t new, but people are regaining an appreciation for it. He writes:

“Supply Chain segmentation is not new, despite recent articles to the contrary, as manufacturing companies have explored ways to manage parts of the supply chain differently for the varied requirements of product lines or categories for decades. … New life is being breathed into an old concept.” [“Supply Chain Segmentation is Back!” Manufacturing Value Chain, 8 April 2011]

Ellis states, “Segmentation is a way to address complexity where and when it is necessary, but reject it where it is unnecessary.”

 

Childerhouse’s and Towill’s Rule 9 — Understand, document, simplify and only then optimize (USDO) the supply chain — is another idea that has gained traction. As technology evolves, this rule (along with Rule 11 — Use only proved simple but robust decision support systems — are becoming easier to implement. Enterra Solutions, for example, uses it proprietary Sense, Think/Learn, and Act system in most of its supply chain optimization products. Understanding what’s going on in the supply chain is the key to making smarter decisions. Their Rule 12 — the operational target is to enable the seamless supply chain, i.e., all players “think and act as one” — represents another bandwagon concept (collaboration) that is receiving a lot of attention. It simply makes sense that life will be easier if working relationships are more cooperative and less confrontational.

 

The primary goal of collaboration is to increase understanding (and, hence, reduce volatility) between supply chain stakeholders. Trevor Miles, referring to a post by Mike Burkett, from Gartner, reports that “Mike identifies the lack of collaboration between trading partners as the primary cause of demand volatility.” Miles agrees with Burkett as far as he goes, but insists, “The lack of demand visibility increases demand volatility, but there are other industry dynamics that are increasing demand variability.” Good collaboration, which Miles says relies on trust, does much more than simply improve demand visibility and decrease demand volatility.

 

In an interview with the staff at SupplyChainBrain, Collin Albrecht, senior director of supply chain with Charter Communications, cautioned that “getting simple isn’t that easy.” Nevertheless, he insists “there are plenty of opportunities for clearing out the ‘clutter’ that adds time and cost to so many parts of the chain.” [“How Can Companies Simplify Their Supply Chains?” 5 August 2011] The article continues with an oxymoron:

“Simplicity can be a complicated matter. From a supply-chain perspective, Albrecht defines the concept as ‘a new back to basics.’ Companies must scrutinize their processes, including procurement, storage and shipping, to clean out the ‘clutter’ that tends to build up in facilities and data. Their guiding principles should be visibility of inventory and collaboration with supply-chain partners. Everyone benefits from the exercise, from the chief executive officer to the order picker to the end customer. Concepts such as sales and operations planning, business intelligence and analytics can be valuable tools, ‘but if you can’t put the correct product on a truck, you’ve failed your customer,’ says Albrecht.”

Cecere agrees that putting the correct product on the proper truck is important; but, she claims, “The traditional goal of right product at the right time at the right place is insufficient.” She insists that corporate alignment is the real end goal. I’m not sure I agree with everything Albrecht next told the folks at SupplyChainBrain:

“The process of data collection is one good place to start. Managers need to rid themselves of unnecessary information, eliminating data that is of use to just one or two people in the company. The establishment of key performance indicators can facilitate the process, with an eye toward removing needless complication.”

If information is of use to one or two people, they should have access to that information. Eliminating that data may hurt rather than help company performance. What Albrecht really seems to want is only the right information, delivered to the right person, in the right format, at the right time. Technology should be able to do that without having to eliminate potentially useful data collection. Albrecht believes that with a little thought and planning, processes can almost always be improved.

“Companies should map out their supply chains to get a sense of how product moves. ‘If it looks like spaghetti on paper,’ says Albrecht, ‘the chances are it’s not going to be good. To visually see how that process flows is the key thing.’ In the distribution center, managers should focus on the goal of fulfilling customer orders, and not burden employees with unnecessary tasks. They should also strive to create an environment in which workers and equipment can function without encountering physical obstacles. … Network simplification is equally important. … When it comes to global supply chains, there are substantial benefits to be gained through better ‘command and control,’ he says.”

In a previous post entitle Have You Heard about Supply Chain Control Towers?, I discuss how some companies are now approaching supply chain command and control. The bottom line is while are some things that can be done to reduce supply chain complexity, like shortening supply lines and segmenting supply chains, the biggest gains are going to be made from increasing supply chain understanding rather than reducing supply chain complexity. Good decision tools can make decision choices easier to understand in a complex world by helping make sense of the complexity itself. As I noted above, that happens when the right information is delivered to the right person, in the right format, at the right time. If your supply chain looks like the tangled mass described by Cecere, or a bowl of spaghetti, as described by Albrecht, then maybe it’s time to take some of their suggestions to heart.