Logistics and Supply Chain Management, 6th Edition

The cost of complexity

It can be argued that an increasing proportion of total end-to-end costs in the supply chain are driven by complexity in one form or another. Often these costs may not be readily transparent as they are hidden in general overheads or the costs of carrying inventory which, as we observed in Chapter 4, are not always properly accounted for.

Underlying much of the cost of complexity in the supply chain is the Pareto Law (the so-called 80:20 rule). Vilfredo Pareto (1848–1923) was an Italian industrialist, sociologist, economist and philosopher. In 1909 he identified that 80 per cent of the total wealth of Italy was held by just 20 per cent of the population. Thus was born the 80:20 rule that has been found to hold across many ...