Operational Excellence in Logistics and Supply Chains
Markets across industries have undergone significant changes within the last decade or so. Thanks to the advent of technologies, the need for specialization has come to the forefront. Companies have incorporated variations in feature and design of their products and services in an attempt to woo and retain their customers. Naturally, this has increased the complexity of the business.
The supply chain industry is also disrupted by this change. As a result, need is felt by the supply chain companies for expediting the processes of value creation, enhancing coordination and increasing the global connectivity for their operations. The steady and voluminous increase in product variations and offers has increased the complexity of organizational processes and structures in SCM companies. As a result, a lot of challenges have come into the planning and control of supply chain operations. Most of the SCM businesses today are disrupted by this complexity, both in terms of a variety of product offerings and in terms of technical complexity involved in developing the products. As a result, they have to make necessary changes to their production facilities, internal processes, and organizational structures. And, they are required to do all these in order to have operational excellence so that they can reduce the complexity in logistics and supply chain operations.
Now, we will discuss how SCM companies can attain operational excellence and reduce complexity in their operations. The appropriate strategies to reduce complexity are usually assigned to complexity design and it leads to significant changes in logistics and supply chain operations in a company. Complexity design aims to redesign the supply chain objects in order to reduce the variety and plurality in them. The following methods can be employed to achieve this-
It is a highly effective method an SCM company can employ to reduce complexity in its processes or products. Its objective is to improve upon the value, which is identified as the ratio of cost and function. Companies either need to reduce the costs or improve the function if they want to attain a customer value on the higher side. If the company has a predefined level of maximum costs in place, this method enhances the target costing. While reducing the complexity of processes, information plays a key part in the companies. They should keep in mind that the failure to disseminate proper information early may lead to redundant and unnecessary processing.
Classification and Prioritization
The proper level of complexity of processes or products can be assessed if companies become able to classify or prioritize their processes or products depending on their value. Methods such as ABC analysis can be used for prioritizing objects. Similarly, CONJOINT analysis can be used for analyzing multiple product attributes and portfolio analysis can be used for grouping objects in multiple dimensions.
Equal Parts Management
The components of a product that are not used in the case of a single product, but are used as components of several products can be termed as equal parts. If companies can make extensive use of these equal parts, the supply chain complexity can be reduced to a considerable extent as it will reduce templates, processes and facilitate less customized interfaces. Companies can establish equal parts by integrating multiple functions (for example, by adopting standardizations across industries).
Supply Chain Design
Supply Chain Design emphasizes on redesigning the supply chain to attain a higher degree of effectiveness and efficiency. To achieve this, companies should visualize a roadmap depending on feedbacks from all associates, resources, and shareholders on business models, potentials of IT-enabled processes or other critical paths involved. The level of detail and the display format of this design depend upon the desired result of the analysis.
Order Penetration Point
The OPP or order penetration point can split orders across their value chain depending upon multiple aspects and hence can directly influence the complexity of the supply chain processes. The two aspects considered here are the changes in optimization targets and the diversion from push to pull production. If it is upstream from the OPP, the customers will push the products as lean as possible. Here, the products will be allowed to push through highly customized or standardized processes of production, without adhering to the specific order. If it is downstream from the OPP, the customers will pull the products that address their specific requirements. Here, the processes need to be agile and dynamic.
Projects are nothing but unique and time-bound assignments in which the planning and restrictions decided by the top-level management are percolated down to the associated assignees. Here, the complexity is mainly determined by the interaction between different layers of control and planning. To counter this complexity, companies should establish effective control mechanisms such as milestones or targets. These milestones should be planned by adhering to cons-effectiveness in mind.
The objective of this method is to improve the controlling and planning of a particular supply chain. To achieve this, it looks to define precise communication directives so that ambiguity can be reduced or prevented in totality. Besides, it facilitates measures to avoid frequent changes in planning.
Adapting to Changing Demand
Even the slightest change in demand can have multiple effects on supply chain scaling. For example, if the annual forecast predicts a rise in sales, all the stakeholders may order for increased stocks as compared to the previous year. If this even gets multiplied upstream, a large rise in inventory will be experienced by the supply chain. To reduce the inevitable complexity (in terms of misinterpretations, misunderstandings, lack of data and so on) in such cases, companies may resort to advanced technologies and information policies.
Information Technology as an Enabler
The business processes of many modern SCM organizations are enabled by information technology (IT). It results in significant business process reengineering in supply chain operations to have common processes and standards for optimizing the SCM performance. These organizations integrate big data from the internet and social media ( from Google, Facebook, etc) in an attempt to readjust forecasts immediately as per the dynamic sales data. The extent of such integration depends on the pre-established performance criteria of the supply chain. A faster pace of integration and better access to data is the key to control and prevent related complexity.
Logic of Communication
It is very much desirable in any communication that the interpretation and understanding of information on the part of the receiver are equivalent to those of the sender. To put it otherwise, the quality of the information shared in business communication is one of the most important determinants of complexity. Mandatory regulations related to information, along with proper visualization complexity and clear instructions of the data structure are equally important for the reduction of complexity.
The bottom line:
In the above discussion, we looked into how SCM companies can ensure operational excellence and reduce complexity in their operations. When it comes to supply chain and logistics, proper visualization of complexity is often the first major step to reduce complexity. For example, having a correct picture of complexity in demand planning will support innovation, improve employee understanding and will help better understanding of practical implications
Having a systematic approach is another prerequisite for attaining operational excellence. Analyzing the systemic interfaces at the very beginning will help to understand the cause-effect-relations better. A collaborative and IT-enabled knowledge management system will also facilitate effective and organized sharing of ideas among people working in complex processes. It will also help the system to keep a track of past events in a batter way.