What is causing Supply Chain Complexity?

Posted by Martin Verwijmeren on Jul 26, 2017 8:24:02 AM

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The data and research is right in front of us. Whether you read Gartner’s Supply Chain research, daily articles from supply chain media outlets, or the Geodis 2017 Worldwide Supply Chain Survey, you’ll notice that a major concern for supply chain leaders is increasing supply chain complexity.

Supply chain complexity is caused by a variety of factors often the result of rising customer expectations for faster lead times, expanded products and services and tailored experiences. These factors force brand owners to support more unique orders for customers across their supply chain requiring greater collaboration with partners, improved inventory management with suppliers and deeper visibility and control into all supply chain steps.

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For this post, we’ll look at supply chain complexity, why it exists today and the impacts it has our ability to meet customer service levels.

Customer Expectations Are Driving Innovation

The quick answer to why we have supply chain complexity is that customer expectations have evolved greatly over the past several years. Buyers crave transparency and flexibility in the purchase process and with that have made what used to be novel concepts in terms of fulfillment and made them into necessities for companies looking to maintain and grow business with their current customers.

Some of these expectations include:

  • Faster Lead Times: Whether B2C with same-day shipping or B2B with quick turnaround or made-to-order manufacturing, we’re seeing that our lead times have gotten substantially shorter to meet customer demands. And while this may have been a source of competitive advantage a few years ago, it’s a need-to-have in today’s economy.
  • Tailored and Stringent Delivery Expectations: Customers want to know where their order is and receive the most accurate expectations for delivery, within tighter delivery windows. It may not even be the expectation of the fastest delivery but accuracy of delivery within a window of time that is most convenient for the customer. You see in the consumer world but you even hear about it with companies like Walmart and the expectations they have with their suppliers!
  • Expanded Products & Services: Mass customization and “endless aisle” concepts have expended the products lists for many shippers. Furthermore, associated services such as technician installation, repair services are also getting more specialized.

Complexity is affecting our current business and customers. Just to maintain our own businesses and customer revenue, it’s clear that we need to adapt the experience we provide to fulfill customer orders.

Growth Targets Require Expansion

Let’s not blame complexity only on our current customers and their rising expectations, however. Supply chain complexity has also been created through the aspirations of our businesses as well. Businesses do not only want to maintain the status quo but grow past it. The post-internet world has provided a huge opportunity for every business to expand their footprint and reach a larger, broader customer base. This growth, however, greatly adds to the complexity we need to support new customers.

This includes:

  • Expanding Markets: In order to drive more top line growth, we’re seeing a ton of expansion into complimentary markets by most businesses. This adds complexity in the form of new suppliers, 3PLs, faster handling and lead times and potentially new fulfillment requirements.
  • New Locations: Whether it’s expanding regionally in the US or internationally this adds numerous milestones that need to be achieved for each customer order to be fulfilled. It also requires investment into new facilities and partner relationships to service the expansion.
  • Acquisitions: Consolidation has been a large driver of complexity for many large firms. It takes years to remove duplicative processes and merge business processes together after an acquisition. This is even without the multiple systems and integrations needed to tie together the different IT infrastructures.

As we expand our businesses and the markets we serve, we add a ton of complexity and stress on our supply chain.

How does the Supply Chain Get More Complex?

As we look to grow our businesses and serve our current customers we see a supply chain grow in complexity in the following key ways:

Growth in Supplier / Partner Relationships: As mentioned above, supplier and partner relationships are critical to expanding your footprint with current customers as well as reaching new ones. However, as organizations this adds complexity not only in terms of managing all of these relationships, which are crucial to customer satisfaction, but negotiating, evaluating and optimizing the use of these relationships. Supplier collaboration and visibility into your partners is crucial to success.

More Milestones to Manage: With expansion of our customer bases and product lines, we’ve subsequently lengthened our supply chain with more steps needed to complete orders. That could be made to order manufacturing, order splitting and combination and multi-leg international shipments. In every case, getting visibility into the granular steps of each part of the supply chain is important so you can manage exceptions in real-time and set the right expectations with transparency for customers.

Vastly Different Orders: It used to be that our supply chains we very much similar for our customers, however, with increased product lines, various shipping options and expanded geographic distribution, this model has put a huge strain on the ability to fill orders. Now strategies need to be much more flexible and agile to the customer order to ensure it arrives on time and at an operationally justifiable cost. We are essentially dealing with micro supply chains for each customer order.

Inventory across multiple parties: Along with our supplier collaboration needs discussed above, we also have a complex inventory problem on our hands. Inventory especially inventory that is not used can make or break profitability and today our inventory is not only stored internally within our manufacturing and warehouse stakeholders but now is with our suppliers and partners as well. Getting real-time visibility and control across our entire internal and external network of partners is the only way to prevent the “bull-whip effect” of increased unused inventory across the network.

Availability of Data: There is a tsunami of data available across the supply chain to use to make more informed decisions. However, it can be overwhelming understanding the data you should rely on not only to make forecasting decisions but also to make real-time decisions on customer orders in your supply chain. There is also gaps in our data that form as we add systems, partners and more complexity where we need greater supply chain visibility.

It’s About Embracing Complexity in your Supply Chain

Complexity in the supply chain will continue to be a huge pain point for organizations especially as customer expectations and our own growth aspirations rise. And the answer to this pain point is not making the supply chain “less complex.” It’s about figuring out how to embrace this complexity and make it a flexible and agile part of how you serve your customers with supply chain orchestration.

This will not be the last time we talk about supply chain complexity. In future posts, we’ll talk about the individual impacts of supply chain complexity and how to make this complexity a competitive advantage rather than a necessary evil. Stay tuned!

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Topics: Supply Chain Visibility, Supply Chain Complexity, 3PL, Supplier Collaboration, Inventory Management


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