Complex and Complexity in Supply Chains

The current disruptions in some supply chains provides Uncertainty for businesses concerning the future state of international trade and its effect on operating and investment decisions. But Uncertainty in supply chains contains three elements: Complexity, Variability and Constraints, which are closely linked, with Variability discussed in the previous blogpost.

Being complex means that a system has so many interacting parts that it is nearly impossible to predict its behaviour. However, Complexity does not mean that supply chains are complicated, rather that it arises from the connectivity and inter-dependencies between elements within a complex system and between the system and its environment. Complexity is generated from decisions and actions that are both external and internal to an enterprise.

External Complexity: is imposed on a business and, over the short to medium term, accepted as a cost of doing business. Change can occur, but it takes time and effort to influence the affected parties. Wherever possible, the Supply Chains group will try to develop ‘workarounds’ that compensate for the effort and costs. External Complexity consists of:

• Imposed Complexity addresses laws and regulations enacted by governments, plus industry codes of practice that must be adhered to as part of a process. An example is Good Manufacturing Practice (GMP); a globally recognized system for ensuring that pharmaceutical products are consistently produced and controlled according to quality standards. 
• Industry Complexity: the structure and processes within a particular industry and the more Nodes and Links in a supply chains network, the more complex it becomes. An enterprise may influence reductions in complexity with its Tier 1 suppliers and customers, depending on the power and dependency dynamics between the parties. However, there is less likelihood of extensive knowledge and possible influence over Tier 2 and higher tier suppliers and customers.

Internal Complexity is introduced or perpetuated by the management of an enterprise. Internal Complexity differs by industry and organisation, but broadly consists of:

• Organisation complexity: the result of strategic choices (including mergers & acquisitions (M&A)) made about the organisation’s operational processes and systems. The complexity of design and operations for its supply chains is influenced by the locations from where the business and its suppliers operate (including international).
• Marketing Complexity results from choices made about the organisation’s products, customers and modes of selling. Complexity across forecasting and inventory management occurs with the ‘long tail’ of products provided by product line extensions or new products, without rationalising the current slow and obsolete (SLOB) products.
• Technical Complexity: developing complex designs; the choice of materials and components; limited commonality of components across product platforms all impact the total life cycle costs.
• Process complexity: where the operational needs of an organisation have been mis-interpreted over time in the design of IT systems, processes and procedures. Each have been developed, upgraded and modified to reflect current needs and as a result have Complexity built-in.
• Work complexity is the difficulty that employees experience to perform their jobs, due to role conflicts (who does what), poorly defined tasks and excessive administrative work.

Can Complexity be eliminated?

Elimination is an aim that is likely to fail, because Complexity grows as a business expands. The catch with complexity is that it is easy to identify and difficult to eliminate. Factors that aid Complexity are:

• Managers who continue to defend a process that has become complex and bureaucratic
• Employees, often with a long tenure in the business, who want a current complex process to remain because they understand how the process works and are the ‘go to’ person to solve problems
• An attitude of acceptance – why change things when senior management do not appear to support the initiative?

And, most managers in operational areas would like to know when there is time available to focus on reducing Complexity. It is therefore important for managers in supply chains to provide a framework for teams to address complexity in their area and across the Supply Chains group. Points to consider for the framework are:

• Ask customers (both external or internal) and other stakeholders about what they want from the Supply Chains group and the individual functions. How can value be added for customers?
• Provide decision making authority for teams and individuals concerning their job and its tasks, so that local complexity can be removed
• If an activity is not adding value, then it is a candidate for being eliminated. Ask the question “If it were not for what (event, regulation, rule etc.), could this be eliminated”
• Identify Flows in supply chains. Opportunities for cross-functional teams, such as in Sales & Operations Planning (S&OP); co-location of personnel to simplify patterns of communication; supplier involvement in product design
• Segmentation of customers, SKUs, suppliers and purchased items. Standardisation of components across SKU’s; simplify supply contracts. The process of rationalisation must include reduced complexity
• Eliminate complex manuals wherever possible. Instead have simple rules that enable quick adaptation to changing circumstances
• Promote a process to eliminate slow and obsolete (SLOB) products
• Identify the tasks for elimination by their importance. Prior to elimination, obtain acceptance from a senior manager

For operational managers, there is the challenge of questioning senior management ranks about complexity they cause including: timing and management of meetings; amount of analysis required; communication overload and others. Also, with the aim for a flat organisation structure, layers of management should be eliminated and the span of control increased as complexity is reduced.

Experience by Learn About Logistics indicates that consistent reduction in Complexity across a business is more than a project. Instead, senior management should consider a financially driven and on-going program to reduce complexity. This requires salaried employees (maybe above a defined grade) to have a complexity reduction target KPI (measured as hours of work eliminated x cost), equivalent to (say) four percent of their annual salary.

Having an enterprise wide program aimed at reducing Complexity in your organisation means that initiatives and action are not isolated to functions within the Supply Chains group. However, the full benefits from improvement will not be gained until the business realigns it processes as Flows that link internal functions. Flows can then be extended to Tier 1 customers and suppliers.