Thursday, September 29, 2005

Supply Chain Complexity

Clive Longbottom of Quocirca has just published a survey of the adoption by medium to large organizations of supply chain automation. Here is his conclusion.

Automation of transactions has long been touted as an enabler of efficiency in the B2B supply and demand chains. The irony is, however, that the more broadly organisations attempt to apply automation, the more they fall foul of the complexity and expense of dealing with the myriad of technologies and standards that exists across their customer and supplier bases. Few have the capability to solve this problem in-house cost effectively, so outsourcing options that leverage economies of scale are key to achieving broad and inclusive automation and realising the benefits that come from this. (via Conmergence blog)

There are many sources of supply chain complexity implied in this piece, besides the complexity and continuing evolution of technical standards.
  • a significant focus on ad hoc activity particularly with customers, where one off sales are common
  • large numbers of partners with differing characteristics and capabilities
  • high complexity in the standards
  • rate of change of partners’ technical solutions
  • multiple versions of standards in the value chain
  • geopolitical issues e.g. local legal, native language and logistical issues
  • myriad of technologies and standards
While it seems like a good idea to delegate some of these dimensions of complexity to a managed service provider, this may not be appropriate for all of them. The most obvious solution is that the service provider handles the technological complexity, leaving the company to concentrate on the business complexity. However, it is unlikely to be as simple as this in practice, because of possible interactions between the technological complexity and the business complexity.

What is needed here is to analyse the dimensions of complexity in detail (obviously this analysis won't be identical for different companies) and produce a service geometry with a clean but flexible division between core and non-core.

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