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Supply Chain Complexity

Complexity in Supply Chains Prof. Jaume Ribera Professor, IESE Business School Port of Barcelona Chair of Logistics, CEIBS.

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Supply Chain Complexity

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  1. Complexity in Supply Chains Prof. Jaume RiberaProfessor, IESE Business SchoolPort of Barcelona Chair of Logistics, CEIBS

  2. "If you are in Supply Chain Management today, then complexity is a cancer you have to fight. Process management is the weapon. Understand that Supply Chain Management is too important to be simply a function. It is everybody's job.“ Tom Blackstock, Vice President Supply Chain Operations Coca-Cola North America Supply Chain Complexity

  3. Supply Chain Reliability On time delivery Percentage Order fulfillment lead time Days Fill rate Percentage Perfect Order Fulfillment Percentage Flexibility and Responsiveness Supply Chain Response Time Days Upside production flexibility Days Expenses Supply Chain Management Costs Percentage Warranty Cost / Revenue Percentage Value added per employee Euros/RMB Assets / utilization Total inventory days of supply Days Cash-to-Cash Cycle time Days Net Asset turns Turns Performance measurement - The SCOR Model (Level 1)

  4. Complexity is simply destroying the profitability at many companies, and executives often can’t see what the true cause is. More suppliers, more parts, more forecasting, more customers to ship to, more returns to manage, etc. Our accounting systems lack the ability to well capture the true cost of this complexity, keeping it hidden. One major reason for increasing complexity is that companies do not do a realistic cost/benefit analysis on adding complexity. “Complexity Factor” (CF) index. CF = # of suppliers * # of customers * # of employees * # of SKUs * # of markets * # of SC locations * # of countries /total company revenue Complexity

  5. Network complexity (nodes, links, tiers, distance, potential for unexpected disruptions, …) Process complexity (process steps, ownership, darwinian evolution, …) Variety complexity (natural tendency to grow, impact on forecasting accuracy, …) Product complexity (number of products, components, interactions, novelty, technology, no commonality in BOM, …) Customer complexity (customization demands, ordering patterns, frequency, size, delivery requirements, …) Supplier complexity (number of relationships, level of cooperative work, …) Organizational complexity (silo organizations, not sharing info, tendency to create intricacy, …) Information complexity (tendency to opacity, systems not talking to each other, info filtering, …) …. Elements of complexity

  6. Characteristics of complexity Numerousness Variability Variety Diversity Interdependency Uncertainty FilizIsik, Complexity in SupplyChains

  7. Drivers of Supply Chain Complexity DerivingBenefitFromSupplyChainComplexity, Vickers & Kodarin, 2006

  8. Steps in Complexity management

  9. Impact of complexity reduction Effectiveness (customer related performance) Complexityreductionlevers Complexitymanagementlevers Efficiency (cost related performance)

  10. An example of complexity: bullwhip

  11. Supplier Customer Understanding bullwhip: the beer game Distributor Wholesaler Retailer Factory Send order day D Order received day D+1 Available day D+3 Shipment day D+1

  12. 1.- Surprise demand !! How to make the best decision

  13. 2.- Forecast future periods (no forecasting error) How to make the best decision

  14. 3.- Fill expected evolution How to make the best decision

  15. 4.- Determine desired final safety inventory How to make the best decision

  16. 5.- Complete the table and determine order now How to make the best decision So, the retailer gets a demand of 4, 4, 4, 5 and passes orders for 4, 4, 4, 10. What will happen to the wholesaler?

  17. Computer modeling Exponential smoothing with a = 0.25 4.25

  18. a = 0.25 Complexity behaviour

  19. Final customer pasta consumption The Barilla case

  20. Barilla - JITD

  21. Competition occurs at the level of supply chains Complexity is increasing in supply chains There are many types of complexity. They all factor into an overall system complexity There are two approaches to deal with complexity: Reduce complexity Learn to how to handle it To improve it, there are some intermediate working stages Conclusions Control Improve Manage Analyze Measure Describe Observe

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