Logistics and Supply Chain Management, 4th Edition

COMPLEXI T Y AND THE SUPPLY C H AIN

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argument that if uncertainty is to be the norm – at least for the foreseeable future

– then a new approach will be required. Indeed, the challenge that organisations

now face is how to reduce their dependence on forecasts and to become increas-

ingly demand- and event-driven.

The sources of supply chain complexity

Complexity in a supply chain can arise from a number of sources and some of the

most common causes are detailed below.

1 Network complexity

The more nodes and links that exist in a network then clearly the more com-

plex it becomes. As a result of outsourcing non-core activities many companies

are today much more reliant on external suppliers of goods and services. Those

external suppliers also are dependent upon a web of second tier suppliers, and

so on. There is a strong likelihood that the focal firm at the centre of the network

will not even be aware of many of the second or third tier suppliers that feed their

upstream supply chain. The potential for unexpected disruptions to the supply

chain is clearly heightened by these extended networks as evidenced by the fol-

lowing example.

2 Process complexity

Underpinning every supply chain are innumerable processes – processes internal

to the firm as well as those processes managed by upstream and downstream

partners. Often these processes have been developed in a haphazard way and

have been added to and modified to reflect current requirements and as a result

have become more complex. This complexity is manifested in processes with mul-

tiple steps, often performed in series rather than in parallel.

Lengthy processes containing many different activities will not only create

extended lead times but are also more prone to variability in performance.

Following the shut-down of Dell’s American assembly line within days of the

September 1999 earthquake in Taiwan the company set out to understand why this

had happened.

To do this Dell studied where their tier-one suppliers did their shopping and

this in turn soon yielded the first important answer – the Taiwan Semiconductor

Manufacturing Corporation (TSMC). Dell’s executives realised that they were in fact

buying hundreds of millions of dollars of chips each year from TSMC indirectly.

Source: Abridged from Lynn, B.C., The End of the Line, Doubleday, 2005