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Another key driver of supply chain complexity is product and service proliferation. There are two primary causes. The first is a failure to phase out or retire certain products as they are replaced by newly introduced alternatives. The other cause is related to the availability of technologies that allow organizations to mass customize their product offerings. These systems, combined with increasingly high customer expectations for products tailored to specific requirements, can lead to an enormous number of product and service offerings. Most companies, therefore, find that they tend to carry an ever-increasing number of products and services. This means more items to plan, source, make, and deliver all of which drive supply chain costs and inventory. Motorola s mobile phone division wrestled with product proliferation. Mobile phones have hundreds of components aerials, battery connectors, PCBs, connectors, integrated circuits, keyboards, liquid-crystal display (LCD) screens, lenses, microphones, phone housings, screws, speakers, and more. Planning for and procuring these components is a challenge in this fast-moving market. Because of this complexity and the growing cost of high inventory levels, Motorola analyzed its component mix, seeking ways to cut back. As it turned out, the company was using far too many nonstandard and product-specific components, many of which could
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Strategic Supply Chain Management
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not be justified. By standardizing components to a greater degree, Motorola was able to greatly improve flexibility and sharply reduce inventory obsolescence and rework costs.7
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Process and Systems Inconsistency
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A third driver of complexity is inconsistent processes and information systems throughout the supply chain. We often find that different locations within the same company have different, incompatible processes. Even when the same software package is installed, it s often configured differently, in keeping with each location s process. Inconsistency can result from acquisitions, but more typically it arises because companies are simply not aware of the benefits of a standard process architecture or haven t invested the resources needed to create one. Inconsistency can When different locations have different result from processes and systems, the company loses speed and efficiency and is less able to leveracquisitions, but age knowledge across the organization. And more typically it each location means added investment and maintenance costs. Inconsistency also crearises because ates inflexibility. Work can t be transferred companies are among locations as demand shifts because each site works differently. Moreover, crosssimply not aware of site leverage in terms of shared back-office the benefits of a activities, such as strategic sourcing, is harder to achieve. Finally, process and inforstandard process mation inconsistency makes it difficult to architecture. integrate with customers, suppliers, and other business partners.
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Overautomation
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The emergence of decision-making applications for supply chain planning and performance management has led to a new driver of supply chain complexity: overautomation. Overautomated processes are difficult to manage because the people who use them don t completely understand how they work. Without this understanding, users can t judge the quality of their output or improve their performance. Supply chain planning tools offer powerful functionality, but rules and algorithms need to be selected carefully, for these systems contain far more features than are needed by most organizations, with some func-
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CHAPTER 2 Core Discipline 2: Develop an End-to-End Process Architecture
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tionality better adapted to some industries than to others. And trying to build models that represent very complex operating environments can itself be a cause of failure. One leading company in the semiconductor industry simply turned off its system after a two-year effort at building a model that represented its multitier global manufacturing network. No matter how you focus your improvement efforts, address supply chain complexity as a priority. Complexity is the single greatest cause of poor investment returns in supply chain management. Even without major changes to business practices, companies can improve performance greatly just by making their operations more manageable and creating the visibility that comes with simplification. In addition, simplifying the existing supply chain is a necessary first step toward more advanced supply chain practices, especially in supplier and customer collaboration. You ll know that your supply chain architecture meets the simplicity test if
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Complexity is the Supply chain process architecture standardization rules are defined single greatest and enforced. cause of poor Product and service complexity and related costs are measured and investment returns in tightly managed. Standards for components and mate- supply chain rials are defined and adhered to. management. The physical supply chain configuration (warehouses, order desks, factories, supplier locations, distribution centers) is reviewed regularly and simplified where possible.
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