Supply Chain Management: An International Journal

Five ways to simplify your supply chain

Rick Hoole,
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(2011),"“Supply Chain 2.0”: managing supply chains in the era of turbulence", International Journal of Physical Distribution
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 Insight from industry

Five ways to simplify your supply chain

Rick Hoole
PRTM, Abingdon, UK

Abstract
Purpose – To provide five ways of simplifying the supply chain.
Design/methodology/approach – Uses the Complexity Reduction Framework to break down supply chain complexity into its component parts.
Findings – Reveals that ongoing globalisation brings increased complexity to virtually every aspect of the business world, and supply chains are the
latest to be affected; thus adaptability has never been more crucial. Many company failures can be traced back to an inability to adapt rapidly to
changing market expectations; overly complex supply chains are not adaptable. It is best to take some of the complexity out of the supply chain.
Originality/value – By simplifying the supply chain process overall performance will usually be enhanced, leading to more consistent quality, lower
operation costs, and inherently greater responsiveness; and this will most certainly yield more satisfied customers.

Keywords Supply chain management, Quality improvement

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Paper type Viewpoint

With the acceleration of global competition in the past
decade, supply chain performance has become a critical
source of sustainable advantage in many industries. Total
supply chain costs can vary by as much as 5 per cent to 6 per
cent of annual revenues between companies in the same
industry sector, based on PRTM’s benchmarking of more
than 500 supply chains. Our research also shows that
companies with more mature supply chain practices are
reducing costs faster than their less mature peers and
achieving higher profit margins. Industry leaders are using
this advantage to increase market share and drive out their
competition. Through supply chain innovation, companies
like Dell, Wal-Mart, and Zara are transforming the industries
in which they compete.
To a large degree, the success of these companies stems
from their ability to reduce the complexity of their supply
chain architecture. All aspects of the supply chain contribute
to the problem: physical breadth and configuration,
management, relationships with suppliers and customers,
organisational structure, and information technology
capabilities.
The overly complex state of supply chains stems from a
number of causes. Competitive pressures that constantly drive
businesses to expand their capabilities are partly responsible.
In addition, most people in large organisations continue to
wear functional hats and, as one might expect, strive for
functional excellence: As each function does what is in the
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Supply Chain Management: An International Journal
10/1 (2005) 3–6
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540510578306]
best interests of its customers or internal stakeholders, it
places demands on other functions. This lack of an integrated
approach can introduce greater complexity. Finally,
complexity simply evolves over time from the cumulative
outcome of many seemingly unrelated functional decisions.
These decisions are driven by business needs that evolve over
time, leaving in their wake supply chain artefacts that service a
need that may no longer exist. Just as the hard drive on your
computer needs to be de-fragmented from time to time, so
your supply chain needs to be simplified.
The case for simplification
It is often the case that one compelling insight can lead to the
development of a multitude of best practices. Simplification is
one such insight that can impact the entire supply chain. It is
only common sense that if a business process can be
simplified, it will usually enhance overall performance, leading
to more consistent quality, lower operation costs, and
inherently greater responsiveness. That powerful
combination will most certainly yield more satisfied
customers (see Figure 1).
Approach to analysing simplification
opportunities
The Complexity Reduction Framework breaks down supply
chain complexity into its component parts. Since the supply
chain is a “process view” of a company’s logistical activities, it
is appropriate that we break the supply chain first into its
process elements. The process elements, in turn, can be
defined by a number of other attributes, or “performance
levers” that can be modified to increase supply chain
performance. The framework of supply chain process
elements and performance levers is illustrated in Figure 2.
The Supply Chain Operations Reference-model w
(SCORw), endorsed by the more than 750 member

3
 Five ways to simplify your supply chain
Rick Hoole
Figure 1 The case for complexity reduction
companies of the Supply-Chain Council, breaks the outbound
supply chain into four process elements:
(1) plan;
(2) source;
(3) make; and
(4) deliver.
“Plan” includes all the supply chain activities related to
demand management, sales and operations planning (S&OP),
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and overall supply chain strategy planning. “Source” covers
the identification of supply sources and the execution of
material and services sourcing on an ongoing basis. “Make”
covers all the conversion activities performed internally.
Finally, “deliver” includes the taking of customer orders and
their fulfilment, including the management of the distribution
infrastructure and outbound transportation.
Five critical performance levers have the greatest impact on
supply chain performance:
(1) configuration;
(2) management practices;
(3) external relationships;
(4) organisation; and
(5) systems.
Figure 2 Complexity reduction framework
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Supply Chain Management: An International Journal
Volume 10 · Number 1 · 2005 · 3 –6
Configuration addresses the physical assets and material flows
of the supply chain. The management practices lever covers
the specifics of how the supply chain is managed. External
relationships deal with how the company leverages the
capabilities of its partners and suppliers. Organisation
identifies who in the company is responsible for what and,
perhaps more importantly, how performance objectives are
aligned. Lastly, the systems lever refers to the retrieval of
information needed to make decisions and support leading
practices.
A number of specific simplification techniques can be
applied to the supply chain. The key is to identify those that
will improve the different performance levers for each supply
chain process element. By creating a matrix, we can begin to
develop a comprehensive toolkit of simplification techniques,
as illustrated in Figure 3.
Complexity reduction techniques
Starting with the plan process element and the configuration
performance lever, one’s first thought might be that there are
no physical assets related to planning processes. So what do
we plan? Products. And are products not physical assets? It is
possible to simplify planning by changing the configuration of
what is planned. First, look for ways to reduce the number of
shippable products that must be forecasted. Consolidating
product and packaging configurations will further reduce the
complexity of the planning process.
Moving to the next performance lever, management
practices, we can simplify the planning process by making
more products to customer orders, thus eliminating the need
to forecast specific product configurations. One important
technique employed is postponement, which involves delaying
the completion of end products to the last possible point in
 Five ways to simplify your supply chain
Rick Hoole
Figure 3 Complexity reduction techniques
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the supply chain. Dell has done this with PCs and, as a result,
has greatly simplified its forecasting process while better
catering to the needs of different consumers and reducing
inventory costs.
When it comes to simplifying external relationships, it is
important to recognise that not all relationships are created
equal. Some customers generate greater profits and are easier
to service than others. By segmenting our customer base
either by market or by strategic value, we can develop distinct,
effective policies for each. This strategy could, at the extreme,
even involve reducing the number of customers dealt with
directly; for example, by encouraging low-volume customers
to use indirect distribution channels.
The first step in simplifying the organisational elements of
the planning process is to develop a structured S&OP process.
Next, reduce the number of people involved by combining
functions such as forecasting, production planning, and
master production scheduling. The appropriate flattened
structure varies with the company. Regardless of the final
structure, make sure the S&OP process and schedule are very
clear and tight, without extraneous cycle time.
The information system’s performance lever can also be
leveraged to simplify planning. Use technology to capture
your customers’ sell-through data and get visibility and
control of their inventory. The more visibility you can get to
true end-user demand and your customers’ inventory, the
simpler it will be for you to plan your own inventory and
production needs. These examples provide a general idea of
supply chain simplification techniques. A total of 15 more are
listed in Figure 3, although even this list is far from
exhaustive.
The term “configuration” has conditioned us to think of
ways to reduce physical complexity. That could mean fewer
suppliers (source), fewer plants (make), or fewer distribution
layers (deliver). The management practices lever may be the
most intuitive one to pull, since we often think of applying
new management practices to reduce complexity. Although
applying lean manufacturing techniques is the most obvious
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Supply Chain Management: An International Journal
Volume 10 · Number 1 · 2005 · 3 –6
solution, it may also be worthwhile to examine sales practices
and the volatility they create. Eliminating the end-of-quarter
“hockey stick” spike in sales can simplify production planning
significantly.
The concept of using the relationships lever to reduce
complexity is to share tasks with your trading partners. This
often can be done in a way that benefits both parties. The
organisational lever is similar, except it usually refers to the
simplification possible as a result of outsourcing work to a
more expert third party. To realise the full benefits of
outsourcing, however, it is important to have a very clear plan
for reducing the internal resources that previously performed
that work. The IT lever is also useful for exporting work (e.g.
e-commerce portals) to trading partners. Another example is
the utilisation of simplifying features provided by enterprise
resource planning (ERP) software, such as repetitive
manufacturing logic.
The process and performance levers matrix can prove a
useful tool in compartmentalising a complex supply chain and
developing many different simplification techniques.
Choosing your targets – developing a plan for
reducing complexity
Like any other methodology, supply chain simplification has
to be properly applied to the specific situation to be most
effective. It is important to choose the appropriate techniques
with the greatest leverage. If a particular technique has proved
successful in the past, see if it can be applied to another
process or performance lever. The framework provided can
both help structure your approach and challenge your
organisation to identify and apply effective simplification
techniques. You can also use competitive benchmarking to
help establish priorities. The Performance Measurement
Group, LLC (PMG) offers two types of benchmarking that
can be used in this manner. Quantitative benchmarking uses
the SCOR Level One metrics with a balanced scorecard that
can help identify performance gaps in each of the major
 Five ways to simplify your supply chain
Rick Hoole
supply chain processes. You can then focus your efforts where
the greatest opportunities exist. The second type of
benchmarking, also organised by the SCOR process
elements, evaluates an organisation’s process maturity
against other companies in the same industry. In many
cases, immature processes are the most complex and therefore
are the best candidates for simplification. Once benchmarking
has identified the priority process areas, the framework can
provide ideas on which simplification techniques to try first.
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6
Supply Chain Management: An International Journal
Volume 10 · Number 1 · 2005 · 3 –6
Ongoing globalisation brings increased complexity to
virtually every aspect of the business world, and supply
chains are the latest to be effected. Adaptability has never
been more crucial. Many company failures can be traced back
to an inability to adapt rapidly to changing market
expectations. The truth is that overly complex supply chains
are not adaptable. Instead of attempting to master complexity
with the latest optimisation software, take some of the
complexity out of your supply chain first. It is that simple.
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