Complexity in Supply Chains

Transcription

1 1 Complexity in Supply Chains Prof. Jaume Ribera Professor, IESE Business School Port of Barcelona Chair of Logistics, CEIBS

2 2 Supply Chain Complexity "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

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4 Performance measurement - The SCOR Model (Level 1) 4 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

5 5 Complexity 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

6 6 Elements of complexity 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, ).

7 7 Characteristics of complexity Numerousness Variability Diversity Variety Interdependency Uncertainty Filiz Isik, Complexity in Supply Chains

8 8 Drivers of Supply Chain Complexity Configuration and Structure Number of suppliers Number of manufacturing locations Number of distribution channels Number of distribution centers Number of ship-to locations Number of customers Products and Services Processes and Systems Number of products/services Number of direct materials Supply chain processes and practices Supply chain organization Number of shipments Number of orders Manufacturing strategy Number of legacy information systems Deriving Benefit From Supply Chain Complexity, Vickers & Kodarin, 2006

9 Steps in Complexity management 9

10 10 Impact of complexity reduction Effectiveness (customer related performance) Complexity reduction levers Complexity management levers Efficiency (cost related performance)

11 An example of complexity: bullwhip 11

12 12 Understanding bullwhip: the beer game Retailer Wholesaler Distributor Factory Send order day D Order received day D+1 Customer Supplier Available day D+3 Shipment day D+1

13 13 Orders Retailer Wholesaler Distributor Factory Demand

14 14 How to make the best decision 1.- Surprise demand!! Period D-2 D-1 D D+1 D+2 D+3 Initial Inventory Receptions Available Inventory Demand Shipment Final Inventory Order 4 4

15 15 How to make the best decision 2.- Forecast future periods (no forecasting error) Period D-2 D-1 D D+1 D+2 D+3 Initial Inventory Receptions Available Inventory Demand Shipment Final Inventory Order 4 4

16 16 How to make the best decision 3.- Fill expected evolution Period D-2 D-1 D D+1 D+2 D+3 Initial Inventory Receptions Available Inventory Demand Shipment Final Inventory Order 4 4

17 17 How to make the best decision 4.- Determine desired final safety inventory Period D-2 D-1 D D+1 D+2 D+3 Initial Inventory Receptions Available Inventory Demand Shipment Final Inventory Order 4 4

18 18 How to make the best decision 5.- Complete the table and determine order now Period D-2 D-1 D D+1 D+2 D+3 Initial Inventory Receptions Available Inventory Demand Shipment Final Inventory Order 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?

19 19 Computer modeling Exponential smoothing f i f i 1 ( xi 1 fi 1) xi 1 (1 ) fi 1 with = 0.25 Forecast ?? Real

20 Quantity = 0.25 Orders Complexity behaviour Customer Retailer Wholesaler Distributor Factory Periods

21 21 The Barilla case Final customer pasta consumption

22 Barilla - JITD 22

23 23 Conclusions 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 Observe Describe Measure Analyze Manage Improve Control