In Depth: Global Supply Chain  Mastering the Complexity Challenge in the Global Supply Chain

A variety of pressures are pushing enterprises across diverse sectors to extend their supply chains around the world. But while many companies are acting globally, they are still thinking locally.


A variety of pressures are pushing enterprises across diverse sectors to extend their supply chains around the world. But while many companies are acting globally, they are still thinking locally.

[From Supply & Demand Chain Executive, August/September 2004] How hard is it to manage a complex, global supply chain for optimal efficiency? Too hard for most companies, according to a study issued last year by consulting firm Deloitte Touche Tohmatsu.

In the study, "The Challenge of Complexity in Global Manufacturing: Critical Trends in Supply Chain Management," Deloitte reported that 57 percent of companies in a survey of 392 North American and European executives had moved production to lower-cost countries. Fifteen percent of the North American enterprises and 29 percent of European companies said they didn't even manufacture products in their home countries anymore.

The study pointed to various drivers behind this trend, with cost figuring prominently. "In a world where mega-retailers like Wal-Mart and Carrefour have amassed enormous buying power, cost pressures for manufacturers in most industries are immense," the study's authors wrote. Other reasons cited in the study included a desire to reduce taxes, duties and tariffs, or to take advantage of various investment incentives, by establishing a presence in a foreign market.

(Almost) All Optimization Is Local

But despite companies' international aspirations, Deloitte found that most manufacturers are not taking a more global approach to designing their supply chains and, therefore, most likely are missing out on the potential efficiencies of such an approach. "Manufacturers are spreading supply chain operations across the world," the consultants reported. "Yet, most still appear to be optimizing their supply chains on a 'local' basis by product, function (say, production), facility, country or region. This means they are losing opportunities for large-scale efficiencies."

A more global approach to the supply chain, according to Deloitte, would involve configuring a company's operations such as manufacturing, fulfillment, logistics and sales with an eye toward maximizing the value of the network as a whole. But manufacturers in the consultants' survey ranked "supply chain network structure" at the bottom of their list of operational improvement initiatives, and only half of the companies had a senior executive with responsibility for the global supply chain. "Furthermore,' the study continued, "few survey respondents had instituted the process changes and technologies necessary to achieve substantial strategic and operational improvements ... despite saying that keeping a lid on supply chain costs was one of their most difficult challenges."

The answer to this dilemma, Deloitte argued in a subsequent report, "Mastering Complexity in Global Manufacturing: Powering Profits and Growth through Value Chain Synchronization," is not to try to simplify your company's supply chain but rather to master the art of designing and managing increasingly complex supply chains. This study revealed that substantial advantages can accrue to those few companies that are able to effectively manage complex, global supply chains. These "complexity masters," as Deloitte dubbed them, are seeing profit margins 73 percent greater than manufacturers with poor supply chain performance and less complex environments. Few companies are pursuing the course of complexity, however. In fact, based on a survey of 600 companies for the "Mastering Complexity" report, Deloitte found that just 7 percent of enterprises could rightly be called complexity masters.

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