Supply Chain Complexity - The growing challenge for performance

Supply Chain ComplexityThe growing challenge for performance

2Wilson Perumal & Company, Inc.

Why isn’t it getting any easier?

[2013] Garment factory tragedy directly impacts a number of multi-nationals including Wal-Mart Stores Inc., Sears Holding Co. and The Walt Disney company.

“Never has so much technology and brainpower been applied to improving supply chain performance… nonetheless, the performance of many supply chains has never been worse.” -- Prof. Marshal Fisher (Harvard Business Review)

1997

[2014/2015] Reuters reports on more 787 production problems which Boeing refers to as “output hiccups”. Noted are “unusual shifts” in the company’s supply chain.

[2012] Best Buy’s much-publicized failure to fulfill many online orders in time for Christmas exposed ongoing problems that hadn’t been resolved. Critics suggest “avoid them”.


Increasing complexity is the biggest challenge for the supply chain

• Input cost volatility

• Shifting sources

• Evolving environmental & safety regulations

• Higher customer expectations

• Shorter product life-cycles

• Business model & technological disruption

• Global supply bases

• Increasing suppliers and partners

• “Right” shoring

• Omni channel fulfillment

• Additional technology investments

• Growing customer centricity

• Delayed integrations

• Tighter inventory policies

• Increasingly extended networks

• Increasingly opaque org structures &

• Need to manage through multiple cultures

• Decreased clarity of direct and indirect costs

• Need for continuous change management

Supply chains are growing increasingly complex making them harder to manage, operate, and change in response to customer, competitive, and financial shifts

A changing world

Typical responses

Resulting Complexity

• Greater number of variables

• Infinite ways to fail


What does complexity in the supply chain look like?Increasing numbers of suppliers, products & components to source and plan

Prod

Mfg

Whse

Field

Expanding networks, product flow alternatives, and processes

Increasing numbers of geographies, markets, channels, and customers to serve

Distrib

B2B

B2C

NorthAmerica

Supplier

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)x x x x x x x x x x

Sources of Complexity (simplified!)

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The impact of too much complexity is higher cost, lower performance, and inability to grow

Level of complexity you can support

Complexity counters economies of scale and dampens profitability

Returns

Cost (and Risk)$

Complexity

An increasing number of companies

Complexity makes ongoing performance and growth increasingly difficult

Complexity increases

Poor execution

Loss of process control

Poor business results

More people and

processes • Shortages• Breakdowns• Missed deliveries• Accidents

$

Companies cannot outgrow complexity; nor do traditional cost containment or process improvement approaches work

Increasing SKUs, facilities, processes…

Wilson Perumal & Company, Inc.Source: Stephen A. Wilson, Mike George. Conquering Complexity (New York McGraw-Hill, 2004)

The case for reducing complexity is compelling

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“Complexity can drive down quality, increase costs and lengthen lead times. Any complexity that is not being valued in the marketplace takes away from my capacity. If that’s the state you’re in, you have poor execution-and you can’t innovate your way out of poor execution.”

- Consumer Electronics VP

Select Metrics Y1 Y2 Y3

Portfolio (#) 3500 2079 499

Product Development projects 120 22 20

New products introduced 0 8 14

On-time delivery 70% 78% 90%

Cust. Satisfaction 27% 55% 90%

Mfg. productivity 1x 2.2x 3.1x

Operating Earnings -6% 3% 7%

Sales 100 125 240

Complexity and business performance are inextricably linked. The benefits of simplification extend across all aspects of the enterprise.

Wilson Perumal & Company, Inc.

Addressing complexity requires an understanding of its drivers

Organization

Value add

Non-value add

The Complexity Cube

Complexity (good and bad) exists along the edges of the Complexity Cube, while the cost of complexity reveals itself on the faces and within. Cost and risk grows geometrically with complexity

Number of products and services you offer

Number of organization, facilities, assets, and systems you employ

Number of programs, processes, steps, and handoffs you execute

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Identifying and understanding the impact of complexity focuses efforts …and prevents you from improving what you should not be doing

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Evidence of complexity is found throughout the supply chain and is sometimes masked as a “local” issue

Companies need to understand the difference between the drivers and the symptoms of complexity

Source

Complexity can easily be the root cause of ongoing poor performance and why initiatives like process improvement and new technology do not yield the expected benefits

↑ Lead-time↑ Cost↓ Utilization↓ Availability

Complexity via

• Product

• Process

• Organization

Plan Make Move

• Late deliveries• Routine expediting • High overtime• Poor space utilization• High accident rate

• Diminished leverage• Inconsistent supply• Rogue buying• Disparate contracts/SLAs• Poor part quality

• Schedule misses• Inconsistent quality• Increased changeovers• Poor asset utilization• High scrap

• High forecast error• Obsolescence• Line shortages• Poor availability• Routine expediting


An often unforeseen impact of complexity is how it diminishes a company’s ability to compete overall Much of the value a company delivers to its customers and shareholders is enabled through cross-functional processes which complexity can significantly hamper

When products or services along with processes cross functional lines, the impact of complexity results in ambiguity (who), loss of context (why), and latency (when)

Too many products, processes, and organizational elements…

…can make it hard to deliver on what may matter the most for success


Fortunately, there is a common approach for reducing complexity and sustaining performance

Diagnose Complexity

Attack Complexity

Sustain Results

Identify and diagnose the sources and impacts of complexity. Understand the size of the prize and plan the journey.

Reduce the amount of complexity AND make it less expensive to deliver. Simplify product, process and organization interactions.

Develop and drive the management systems and culture to sustain operations excellence. Control complexity going forward.

© Wilson Perumal & Company, Inc.

Product-related complexity drivers• Numbers of SKUs and components• Configurations and packaging options• Special conversion/handling requirements• Supply market challenges• Safety/environmental hazards

Understanding complexity drives the right set of actions and focus for improvement

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Organization

Value add

Non-value add

Organization-related complexity drivers• Geographic service area• Number of locations (operations, support)• Number of organizations• Offshore and outsourcing models• Competency requirements

Process-related complexity drivers• Multiple or unique customer requirements• Local regulatory and compliance needs• Differing (lack of) service level policies • Too many suppliers and/or partners• Uncommon objectives and metrics

Sample actions Portfolio rationalization Supplier consolidation Product simplification

Sample actions Network optimization Operating model reengineering Portfolio rationalization

Sample actions Service optimization Process & technology standardization Operational excellence


Examples of how this approach gets applied

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• Reduced SKU count by 75% • Reduced distribution depots from 18 to 5 • Reduced production factories by 15%

• 10% increase in margins• 7% revenue growth on a like-for-

like basis

Product & Org Process & Org

• Aligned production with geographic market• Reduced SKUs produced per plant by 50% • Replaced 3-touch with 1-touch distribution

$15M+ in benefits realized

Product & Process

“ the top-down approach gave us insights into our operating model. The insights are phenomenal!” —President Land o’ Lakes Feed

• New cross-function and cross-mission KPIs• Streamlined processes, decisions and roles• Common principles to drive decision-making

$140M+ in benefits realized

“…the best understanding of the ammo logistics base I have seen…I for one have been waiting for this for years”--Depot Commander

“…our thinking is more joined-up and there is a more coordinated focus on revenue and margin growth” - CEO

Consumer goods Agribusiness Government


A few final thoughts…

• Complexity is the enemy of an efficient supply chain

• As complexity increases, the value of scale decreases

• The answer to complexity is not adding more complexity

• Attacking the right complexity drivers yields more effective and sustainable improvement


There are multiple ways we get started depending on organizational alignment and clarity of issues

Build the case for action

Identify the Right Levers

Eliminate bad complexity / Reduce cost to deliver good complexity

Procure

Plan

Mfg

Distribute

Strategy

Supplier Rationalization

Part Reduction

S&OP

Out-of-Stock Reduction

Operational Excellence

Inventory Optimization

Order-to-Cash

Supply Chain Strategy

Production Optimization

Op Model/Organization

In/Out- Sourcing

Service Optimization

Operations Excellence

SRM

Plan-to-Produce

Procure-to-Pay“Business Simplification”

“Imperative for Growth”

“Cost Reduction”

“Reducing Risk” Operations Excellence

Customer Profitability

Cost to Serve

Business Standardization

Time to Market/Innovation

Portfolio OptimizationNetwork Design SC Operating Model

Cat. Mgmt

Transportation Optimization DC Ops

Issue-to-Resolution

Workshops Assessments Programs & Projects


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+44 (0)203 206 1496

Contact Us:

www.wilsonperumal.com

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Supply Chain Complexity - The growing challenge for performance

Leadership & Management

Transcript of Supply Chain Complexity - The growing challenge for performance