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Top 3 ways to recognize a complex Supply Chain

  • 6th May 2015
  • Categories: News

Supply chains have become increasingly more complex. This has been driven through the use of enabling technologies like the internet to facilitate on-line supply and delivery as well as the move to off-shore sourcing. As Australia progresses through the structural change in its economy and moves away from traditional local manufacturing into sourcing from overseas suppliers, the complexity and risks in the supply chain increase.

The move from traditional purchasing at store to on-line purchase and delivery is increasing (note how Australia Post parcel deliveries have overtaken its traditional mail business) as well as alternative delivery methods such as on-line order and then store or depot pick-up. The mood seems to be faster, quicker and sooner. The supply chain truly moves at the speed of light!

What of the future? How will 3D printing affect sourcing of components? Will drone delivery become a reality and how would it affect the supply chain? How will the Internet of Things (IoT) alter the way we purchase or procure goods and services? How will Big Data bring better demand sensing in the future?

While it is difficult to predict the future, it is important not to discount it. I had the opportunity in the mid-1990s to listen to Nicholas Negroponte (author of Being Digital in 1995) predict the demise of books which were to be replaced by a small flat screen held in one hand and updated wirelessly. The audience regarded it with obvious skepticism, but some 20 years later, that prediction is far more believable. It is worth noting that last year music downloads outsold music CD sales for the first time ? probably the death knell for CDs.

The risk in increasingly complex supply chains built to meet ever increasing customer demands is that the ongoing incremental cost due to the complexity outweighs the benefit received from the customer, i.e. margin erosion.

Consider this quote from Albert Einstein;
Everything should be made as simple as possible, but not simpler
Clearly we should strive to remove complexity from the supply chain, but there is a limit to which we can or should do this. The risk of ignoring the complexity in the supply chain is higher costs and lower service levels.

What makes a supply chain complex and is your own supply chain complex? There are three questions to ask, which can help understanding of where the complexity comes from.

Question 1:
Does a hierarchy of stocking locations exist in the supply chain?
For example, does the supply chain have a central DC supplying state DCs and then onto branches? Or are there multiple warehouses supplying the same stock to multiple branches or customers?

Having a stocking hierarchy [a multi-echelon structure] adds complexity into the management of the stock in the supply chain. This structure adds an element of redundancy which must account for an improved service level and/or a lower overall cost.

Question 2:
Are there choices to be made within the supply chain?
For example, do you have multiple suppliers for the same items, a choice of transport method (air, sea, rail or road) or different supply routes for a customer? With choice comes the opportunity to remove or add cost to the supply chain and often these choices are reduced to the obvious or the easiest, without consideration of the overall outcome. In my experience, you generally have more choices about your supply chain than you might realise.

Question 3:
Are there constraints within the supply chain?
For example, does the supply chain have supply, storage or time constraints? Some these constraints are hard constraints, i.e. time available, but some can be soft constraints which can be overcome with the application of more resources, i.e. temporary additional warehouse storage. With more constraints in the supply chain, it becomes more complex and harder to manage and optimise.

By asking and considering the responses to these three questions, it is possible to gain an insight into the complexity of your supply chain and then use it to your advantage. A common, and misguided approach, is to ignore the complexity and apply a simple solution for the sake of simplicity. Whilst this might present some operational benefits, the inventory flows are unlikely to be optimized within a simpler structure.

Better thinking is recognizing the complexity as a part of the solution and allowing the inventory flows to be optimized in a natural way, much like the way that water naturally determines the easiest way to the lowest point.

If you need assistance in understanding how to leverage the complexity in your supply chain for the optimal inventory flows, then please feel free to contact me.

Shaun Gates
Managing Director
Lexian Solutions
Phone: +61-2-9958-0733
Fax: +61-2-9413-9848
Mobile: +61-(0)400-319-794
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