This Week in SCDigest:
The War on Supply Chain Complexity
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
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Expert Insight - Lean Thinking: - Supply Chain Perspective: Lean Thinking and Vendor Managed Inventory Programs
From RetailWire - Jones Apparel Group in Item-Level RFID Test
Your Supply Chain Questions Answered! This Week's Question - Should Receiving be Counted as a Product Touch?
Trivia, Supply Chain Stock Index
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August 21, 2008 - Supply Chain Digest Newsletter

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The War on Supply Chain Complexity

First, yes, this is a new and we hope improved look for the SCDigest weekly newsletter. Like many things, you just need to renovate every so often, which we have now done. Second, yes, that is the same old picture of me. That is being “renovated” too, but didn’t get done for this week.

Gilmore Says:
"If anyone understands the cost of complexity, it is supply chain managers. We should take the lead in trying to quantify those costs for the rest of the company and our industry." 

What do you say?
Send us your feedback here

In June, I featured a very popular column on “The Supply Chain Complexity Crisis,” triggered in part by a presentation and conversation I had with John Mariotti, a former president of Huffy Bikes and a division of Rubbermaid, and author of the recent (and excellent) book The Complexity Crisis.

The basic theme of the book and my column: complexity is simply destroying the profitability at many companies, and that executives often can’t see what the true cause is. They blame poor execution of what, in truth, are strategies doomed by the complexity they add, especially in the supply chain. More suppliers, more parts, more forecasting, more customers to ship to, more returns to manage, etc. Our accounting systems also lack the ability to well capture the true cost of this complexity, keeping it hidden.

I spent enough words summarizing the problem in that first column that I didn’t have room for any ideas on solutions, which I promised for a later date, and which is the focus of today’s column.

I asked one of the smartest men in the supply chain, Chris Gopal, currently EVP of Global Operations for Open Energy Corp., and with a long and distinguished supply chain consulting career before that, for his thoughts on this topic.

“I agree with Mariotti - complexity is destroying profitability in many companies,” Gopal said. “I believe that companies must reduce complexity and increase commonality (I was in charge of one such initiative at Dell for Tom Meredith) if they are to survive and be profitable in a sustainable fashion.” (Interesting to note that Dell again is trying to reduce supply chain complexity.)

Gopal added: “There are, of course, those bigots of "complete focus" who try and skew the discussion to the other end - but both are wrong.”

In other words, you also can’t so narrowcast what you do that you can’t expand your market either.

“One major reason for increasing complexity is that companies do not do a realistic cost/benefit analysis on adding complexity. Even if the accounting systems do not comprehend this, I have rarely seen even a one-time financial analysis done!” Gopal said.

“Another factor is that complexity creeps up on companies - through marketing, distribution, design engineering, etc.” Gopal also said. “I think that the flip side to complexity is commonality - parts, components, processes, systems, carriers, distribution channels, packaging, manufacturing, postponement/vanilla/faux customization, etc. This is something that needs to be emphasized as well.”

This “creeping” effect is something that Mariotti also focuses on. Adding complexity isn’t a conscious decision – it’s the result of hundreds or thousands of little decisions that build a house of complexity brick by brick.

Mariotti himself offers an interesting notion – start using a “Complexity Factor” (CF) index. What is that, pray tell?  He says you calculate it as follows:

CF = # of suppliers * # of customers * # of employees * # of SKUs * # of markets * # of supply chain locations * # of countries/ total company or division revenue

In other words, it’s like a calculation of how much sales dollars each moving part of the business generates. The smaller the number, the less complex the company is.

Is it a perfect or universally applicable measure? No. Is it a decent place to start? Probably so. And while I am nearly sure there is no empirical data on this, I would be pretty confident in wagering that companies with a lower score are on average more profitable than those with higher scores, and that a general plan to reduce the score probably will have some excellent benefits.

Of course, the world and markets today are more complex. To take just a few examples, many companies are finding that the potential for growth is much greater now in the developing countries than domestic or developed economies. But that adds a lot of complexity, and often new product designs (and new suppliers, etc.) that can meet developing market capability and price point requirements. Many companies of late are also adding suppliers, after finding that single sourcing components is very high risk. There was also a lawsuit decades ago that charged that the giant US cereal makers developed innumerable offerings in part as a barrier to new competition. The suit failed – but may have been in part directionally correct.

In other words, complexity is rarely irrational, and may often at least appear the very smart thing to do.

There was a relatively well-known report from Deloitte Consulting a couple of years ago on “Complexity Masters,” which argued that profitability leaders were largely those companies that found a way to harness supply chain complexity.

In his presentation, Mariotti himself acknowledged that it was possible to harness complexity for competitive advantage, if done right.

Yet, to repeat and correct the quote I was trying to find in the first column (thanks Mark Baxa of Monsanto) from Tom Blackstock, Vice President Supply Chain Operations Coca-Cola North America: "If you are in Supply Chain Management today, then complexity is a cancer you have to fight. Process management is the weapon. Understand that Supply Chain Management is too important to be simply a function. It is everybody's job."

If anyone understands the cost of complexity, it is supply chain managers. We should take the lead in trying to quantify those costs for the rest of the company and our industry.

More on all this again soon.

Do you have any answers to the supply chain complexity crisis? How do you know when complexity is simply required, and when it is a net negative? Can complexity really be “mastered?”

Let us know your thoughts.



Service Parts Optimization at Volvo Construction Equipment

September 10, 2008


Strategic Supplier Management in the Supply Chain

September 16, 2008


Leading Edge Logistics, Part 2
From Strategy to Execution

September 17, 2008


Measuring What Matters
in the Supply Chain

Market leaders are not satisfied with standard order performance measurements. Download this complimentary report to learn what three things market leaders do differently in measuring supply chain performance.


This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week - The Shape of Value Plot

Supply Chain by the Numbers: August 21, 2008


Wall Street engaged in some sideways trading activity last week after its spectacular performance the week prior.  Consequently, our Supply Chain and Logistics stock index results were remarkably mixed.

In the software group, JDA soared 8.3%, while Oracle fell 2%.  In the hardware group, both Intermec and Zebra had a profitable week (up 9.3% and 3.1%, respectively).  In the transportation group, Expeditor’s International was up a respectable 2.7%, while Union Pacific fell 7.6%.

See stock report.


Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
August 19, 2008 Edition


EXPERT INSIGHT - Lean Thinking
by Mike Loughrin

Supply Chain Perspective: Lean Thinking and Vendor Managed Inventory Programs

True Value of VMI Comes Through Creation of Pull-Based Systems that Support a Lean Supply Chain


Jones Apparel Group in Item-Level RFID Test

BrainTrust Panel Discussion Question: Is the Time Right for RFID at the Item Level?


For a company with 10,000 SKUs, how many SKUs does an individual forecaster/demand planner manage, on average?

A. Click to find the answer below

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Have supply chain or logistics-related questions you need answered?

Ask our panel of experts. Share your insight.

Featured Question and Answer: Should Receiving be Counted as a Product Touch?


Catching up as always this week on a variety of letters. Remember, feedback now is also available at the bottom of each article.

We received a number of responses on our original piece on Supply Chain Complexity. That includes our Feedback of the Week from Hans Groen of the Netherlands, who says complexity is part of the result of CEOs not wanting to ever downsize a company to a more manageable level. More letters on complexity again next week.

We also heard from John Coffield of ATS, who agreed with Patrick Connaughton of Forrester that companies need to relook at the supply chain software plans. Finally, Len DeWeerdt and John Sved weigh in on the potential impact of 100% container scanning on logistics cost and speed?

Give us your thoughts on this week's Supply Chain topics As always, we’ll keep your name anonymous if required.

Feedback of the Week - On Supply Chain Complexity:

The main paradigm of many companies is their everlasting wish to grow in size and market. Many think that they cannot sustain their business without considerable growth in volumes and market penetration. This paradigm not only upsizes your business, it also upsizes your complexity of business as pointed out in the article.

Economic and scale growth may seem the answer to face the competition, however, it is a short-term strategy. Consider the development and results of companies that constantly pursue growth over a period of 5 years or more. Their development will show a wave in time. A wave of periods of strong growth, followed by a period of decline. This constant change, related to the global economy wave, never results in a decline of complexity. Companies may lose grip on their market, they do maintain their complexity, which is further extended at the next wave of growth.

Reducing complexity of logistic can only be achieved through reducing the size and complexity of the company. More companies should consider to break themselves up. Which is now often forced by Capitalist companies, which look for quick wins, through buy, break-up and sell the loose parts of the organization. This strategy is only more logical when you evaluate the performance of companies related to their size. They grow in turnover, their performance and margin mostly remain at the same level or even decrease.

CEO's are too proud to admit that size doesn't matter. Bigger isn't better. Companies should remain small and agile. Don’ t buy your competition out, set up a strategic alliance which leaves enough space for independent business for both. CEOs should also accept that companies may go bankrupt. It is like life itself.

When a company does not add real value anymore to the market, it should step aside and make room for the new, bright and smaller newcomer, which is still in touch with the market. Smaller, quick-operating companies have fewer problems to sustain a flexible supply chain. Learn from it. Don't grow, resize, get smaller and flexible again.

Hans Groen
Management Consultant & Interim Supply Chain Manager
The Netherlands

On Supply Chain Software:

I agree with Patrick Connaughton.

We find that many companies are overlooking a phased approach and are missing the low-hanging fruit of savings that can be derived from a well-managed TMS. We are implementing our system with little or no cost to the customer with extremely fast ROI from optimization. A huge benefit that customers realize is the visibility that a good TMS can provide.

The ability to accurately record and assess performance across the supply chain has taken on a higher value based on the current transportation environment.

A TMS system should not only allow you to see the financial results of an optimal transportation plan, but should also allow you to review the impact of changes to the plan.

I believe that companies are used to the typical high costs of implementation of a legacy system, they don't realize that today's TMS systems offer simple integration and very flexible utilization.

Don't be scared, be a hero in your company, implement a TMS that will reduce transportation costs right out of the box. However, we suggest that employing a TM Company to manage the system does provide a faster return.

John P. Coffield
National Accounts
ATS-Supply Chain Solutions

On 100% Container Scanning:

A few comments on the article.

I spent some time exploring mechanized automation for container inspection and I agree, 100% is not doable without breaking the economic models. The size of containers, cost of handling, and shear numbers are mind boggling. During that time, I attended a CSCMP meeting in NYC (CLM at the time) some years ago where a Maersk executive pointed out that the number of inspections can be curtailed by source checking bills of lading and applying some 'safe' source guidelines against inbound shipments. In any case, he indicated that 5% or less of the containers would need some form of physical screening, automated or manual. That, I believe was doable. I think the same thing can apply to air cargo, where the material handling problems are much less.

Automated Material Handling with some inspection automation might make it possible to detect certain threats without much delay, for at least the <5% numbers.

Len DeWeerdt
LW Consulting, LLC
Business and Material Handling Consulting

Any economic analysis of the cost impact of 100% inter-modal container risk screening has to use a reference technology proposed for the scanning function. If a nuclear physics laboratory at the port is the reference scenario, then the high-facility fixed cost and low-container throughput will drive up the cost charged to each container.

There are nuclear techniques which are in service in industries such as cement and coal. The ContainerProbe concept utilizes the same industrial techniques which enable high throughput for risk screening. Every container on a freight train arriving or leaving a port or other transport node would be probed by an intense pulse of neutrons while in motion. The gamma spectrum of the contents can be compared to previously recorded spectral data matched to the registered contents. Anomalies or directly detected indicators would be the reason to divert the suspect container for a more thorough and time consuming, no- intrusive inspection with low throughput imaging systems.

The gamma spectral “finger print” approach will be enhanced by a global ContainerNet data fusion system, which builds upon already operational port and customs logistics information systems. Disparate data bases would be accessed by the new “data fusion” search engine technology to be used by security agencies.

Our estimation of the cost per container ranges from 50 cents to one dollar depending on the business model. Deployment of ContainerProbe-Net at major hub ports can screen containers which are destined for transfer by feeder ship to or from the smaller ports.

ContainerProbe-Net is being promoted to the US government agencies by ConsortiumNeutron Systems ( Recently it was proposed by NSD-Fusion to the EU Eureka EuroStars programme which is intended to support highly innovation small European enterprises. As a global system and business many regional partners and stakeholders will be able to participate and benefit as already acknowledged by pilot 100% screening projects.

T. Firestone  and John Sved


Q. For a company with 10,000 SKUs, how many SKUs does an individual forecaster/demand planner manage, on average?

About 2200, according to the most recent annual survey by the Institute of Business Forecasting and Planning. At companies with 50,000 SKUs, the per planner average is 7000.


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