Coping with Supply Chain Complexity

Supply chains are more complex, consumers are demanding more, and costs are increasing. Can lean help?

I believe so, but first let me explain why I raise this question. Supply chain complexity is the focus of an
article in a recent edition of GMA Forum, published by the Grocery Manufacturers Association. The article, by two top executives of Archstone Consulting, describes a survey the consulting firm conducted of leading CPG (consumer packaged goods) companies.

Their findings:

Overall, CPG companies are struggling with rising complexity and the traditional solutions to the problem aren’t getting the job done. The industry is bailing water and the boat is filling up faster.

■ Most respondents cite growing supply chain complexity as one of the most challenging issues they face.
■ All respondents cite their lack of understanding of the costs of complexity as a key gap.
■ Almost all respondents see customer demands, not consumer needs, as the key driver of increased complexity.
■ Most of the respondents demonstrate a pattern of trying many different things to mitigate the negative impacts of complexity and without much success. (Key learning: A shotgun blast won’t tame this tiger!)
■ In general, respondents estimate that rising supply chain complexity costs their businesses between five percent and 10 percent-plus on their bottom line. Given the overall growth of CPG at roughly three percent per year, and average margins for the industry, this is a potentially losing proposition.

Complexity, in this case, refers to the never-ending increase in the number of different products companies develop and sell. Also, “customer demands” refers to a Wal-Mart or other large company “requesting” the manufacturer to develop something new.

The article does note improvements in supply chain operations:

In its most recent logistics study, the GMA reported that order-to-delivery cycle times have dropped from an average of 7.8 days in 1999 to 3.6 days in 2004, with the goal to reach 3.1 days in 2007.

But costs – as a result of complexity – remain a problem. What can be done? The authors say:

We see the emergence of a new kind of supply chain; an innovation-driven supply chain capable of capitalizing on market opportunities to provide consumers with unprecedented levels of personalized customization and choice.

I don’t disagree. But the authors fail to discuss HOW these new innovation-driven supply chains are going to handle all this complexity. What is needed here is a strong focus on the processes of a supply chain, with an application of lean strategies and methods to make sure those processes remain focused on value with as little waste as possible.

(Kanban for the Supply Chain: Fundamental Practices for Manufacturing Management by Stephen Cimorelli is one of many books we publish in this area, with more on the way.)

How is your company coping with supply chain complexity? Post your comments below.

1 comment:

Vishnu said...

I agree that the supply chain complexity is increasing day by day. To my understanding most CPG companies use traditional batch manufacturing systems. Though it is hard in that industry to move from batch manufacturing to continuous flow, they can adopt optimal (small) lot sizes. One of the biggest wastes in CPG industry is the inventory thru the supply chain. They maintain several weeks supply if not months as many products have huge shelf life. Those in the short shelf-life / perishable / chilled food industry maintain a few days to few weeks inventory. The challenge is to cut down on the inentories in the distribution channel and at the same time reduce order to delivery cycle.
Lean can definitely help but it needs a change of mind set.

Vishnu Rayapeddi
Productivity Solutions Limited