Supply Chain Complexity: What’s Behind Supply Chain Disruption and Why You’re Not Achieving Consistent ROI Improvement
In a 2016 Gartner survey, 63 percent of supply chain leaders reported “increasing supply chain complexity” as the highest risk to business continuity. A second survey from Gartner identifies supply chain complexity as #4 in the list of obstacles to achieving supply chain goals. As supply chain leaders face these challenges, they should focus on optimizing networks to reduce their organization’s risk to operations.
As an example, a retailer who had grown by mergers and acquisitions experienced long product delivery times, increasing labor cost, low profitability and slow to no growth in its business. Products traveled through a network of crossdocks before reaching the final distribution center and, in the process, were handled multiple times. All the while, this retailer was focused on maintaining high service levels at its stores. This led to expedited shipments and all products being stocked at all distribution centers. As a result, operations ran at a much higher cost, requiring more cash flow.
Q: What are some of the main causes of supply chain complexity?
A: Consider the following.
- Growth in new countries, regions or markets: Cross-border shipments, long transportation lead time, storage and distribution all compound complexity.
- A focus on customer needs and service: Transition from single-channel to multi- and omni-channels, all while enhancing the customer experience, can make the management, storage and distribution of products very complex. The shipper also has to manage smaller order sizes and higher inventories, both of which lead to lower productivity. Customizing products can lead to proliferation of stockkeeping units (SKUs) and increasing overall inventory.
- Rapid growth: Growth can lead to increased inefficiency, and duplication of products and locations, all negatively impacting productivity.
Q: What can I do to reduce supply chain complexity?
A: If you feel these or any other negative impacts of operational complexity, you can use analytical techniques such as network optimization to model and identify opportunities to simplify your network. Supply chain design impacts up to 80 percent of supply chain operating costs. Understanding how location of plants and distribution centers, supplier selection, customer service level decisions, and customer assignments all work together is imperative.
Optimizing a supply chain network starts by collecting operational, transportation, and product data. Mathematical models are developed to identify business rules and inefficient location, inventory, supplier and customer assignments. Companies need to invest in setting up, closing, or reconfiguring facilities and negotiating with customers on service expectations. It is typical to achieve between 10 and 15 percent reduction in supply chain operating costs by taking out complexity. These projects typically need sponsorship from chief supply chain officers, and impact a number of different business units.
A lead logistics provider such as Schneider can perform network optimization studies to help customers simplify their supply chain operations, as well as to manage the entire transportation operation and provide technological solutions—such as transportation management systems—to optimize transportation decisions and provide continual year-over-year savings.