SSRN-id2056331

Electronic copy available at: http://ssrn.com/abstract=2056331

DEALING WITH COMPLEXITY IN THE SUPPLY CHAIN:

THE EFFECT OF SUPPLY CHAIN MANAGEMENT INITIATIVES

SEYDA SERDARASAN1

Department of Industrial Engineering, Istanbul Technical University, Maçka, 34357 Istanbul, Turkey

MEHMET TANYAS

International Trade and Logistics Management Department Maltepe University, Istanbul, Turkey

Abstract

Purpose − The study examines the supply chain complexity concept and discusses how current

supply chain management initiatives (in terms of activities, tools, and information technologies)

contribute to complexity management in the supply chain.

Design/methodology/approach − A literature review was conducted regarding complexity

management in the supply chain. This was followed by a questionnaire survey that focused on

the current efforts of companies regarding supply chain management initiatives and complexity

in their supply chain.

Findings − The literature review shows that supply chain management initiatives contribute to

the efforts of companies to deal with complexity in the supply chain, especially in managing

interactions, and reducing uncertainty. The survey results support these findings.

Practical implications − The results of the survey provide insight into the capabilities to focus

on when dealing with supply chain complexity.

Originality/value − The study reflects how current supply chain management activities, tools

and enabling technologies contribute to dealing with complexity in the supply chain and

provides a starting point for further research in complexity management in the supply chain.

Keywords Supply chain complexity, Supply chain management, Integration, Information

technologies, Complexity management

Paper type Conceptual paper

1. INTRODUCTION

Supply chain is a complex network of business entities involved in the upstream and

downstream flows of products, services, finances and information (Beamon 1998; Lambert et

al. 1998; Mentzer et al. 2001). Supply chain management (SCM) is the systemic and strategic

coordination of these flows within and across companies in the supply chain with the aim of

reducing costs, improving customer satisfaction and gaining competitive advantage for both

independent companies and the supply chain as a whole (Cooper & Ellram 1993; Cooper et al.

1997; Mentzer et al. 2001).

The importance of SCM as a competitive strategy has long been recognized by the

companies. Consequently, companies undertake SCM initiatives to maintain and improve their

competitive position. However, there is little evidence of how these initiatives affect the

complexity of the supply chain. It is clear that supply chain is a complex system and it is almost

common sense to say SCM is about managing the complexity inherent in the supply chain. This

paper tries to shed some light on the contribution of SCM initiatives to deal with complexity in

the supply chain. There may be certain difficulties in dealing with complexity in a supply chain,

1 *Corresponding author: [email protected] (S. SerdarAsan)

Electronic copy available at: http://ssrn.com/abstract=2056331

Dealing with complexity in the supply chain: the effect of supply chain management initiatives

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however when managed correctly it leads to achieving better supply chain performances, which

is supported by numerous studies (see, among others, van der Vorst & Beulens 2002; Vachon &

Klassen 2002; Perona & Miragliotta 2004; A.T. Kearney 2004; PricewaterhouseCoopers 2006;

Kersten et al., 2006; Koudal & Engel 2007, Bozarth et al. 2009).

The aim of this paper is twofold. First, it reviews the studies regarding complexity

management in the supply chain and discusses the contribution of SCM initiatives to deal with

supply chain complexity (SCC) from three major areas: key SCM activities, SCM tools, and

information systems and technologies that enable SCM. Second, it reports the findings of a

survey research designed to reveal the current efforts of companies in the above mentioned

areas and in dealing with the complexity in their supply chain.

2. LITERATURE REVIEW

2.1. Complexity in the supply chain

Adapting Yates’(1978) definition, we can say that supply chain is a complex system since

we can observe one or more of the following features in it: (a) there are various companies; (b)

there are high number and variety of relations, processes and interactions between and within

the companies (c) these processes and interactions are dynamic; (d) many levels of the system

are involved in each process; and (d) the amount of information needed to control the system is

large.

Borrowing from Casti (1979), we can distinguish between two aspects of SCC: static and

dynamic. While static complexity describes the structure of the supply chain, the variety of its

components, and strengths of interactions, dynamic complexity represents the uncertainty in the

supply chain and involves aspects of time and randomness. This distinction has been primarily

used to study complexity in manufacturing systems (see, among others, Deshmukh et al. 1992;

1998; Frizelle & Woodcock 1995; Calinescu et al. 1998). In the same vein, studies dealing with

SCC distinguish between structural and operational complexity (Sivadasan et al. 1999,

Sivadasan et al. 2002a). Structural (static) complexity refers to complexity of the structure of a

product and the structure of the processes to supply, produce, and market that product.

Operational (dynamic) complexity in supply chain is associated with the uncertainty of

information and material flows within and across organizations, which is generated by internal

sources (e.g. how well the facility is controlled) and by external sources (e.g. the effect of

customers and markets) (Frizelle & Woodcock 1995; Calinescu et al. 1998; Calinescu et al.

2000). Other classifications of SCC can be found in the literature; such as technological,

organizational, environmental and output complexity (Zhou 2002), technical and flow

complexity (Kaynak 2005), internal and external complexity (Blecker et al. 2005; Größler et al.

2006; Kersten et al. 2006).

In short, complexity in the supply chain is characterized by numerousness, variety,

connectivity, uncertainty, non-linearity, and dynamism in the supply chain and its environment.

S. Serdarasan & M. Tanyas

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Figure 1 illustrates the characteristics of the supply chain as a complex system, which are

grouped into static and dynamic aspects.

Figure 1. Main characteristics of supply chain as a complex system

2.2. Complexity management in the supply chain

Complexity in a supply chain grows, as customer requirements, competitive environment

and industry standards change, and as the companies in the supply chain form strategic

alliances, engage in mergers and acquisitions, outsource functions to third parties, adopt new

technologies, launch new products/services, and extend their operations to new geographies,

time zones, and markets The growth of SCC seems to accelerate with trends such as

globalization, customization, outsourcing, innovation, and flexibility (Deloitte Touche

Tohmatsu 2003; BCG 2006).

Before developing and implementing strategies to deal with SCC, it is important to

differentiate between necessary complexity and unnecessary complexity. Necessary complexity

adds value to the customer/company/supply chain and the customer/market is willing to pay for

it, whereas unnecessary complexity brings no additional benefits to the company/supply chain,

and involves additional costs (Frizelle & Efstathiou 2002; Apostolatos et al. 2004; A.T.

Kearney 2004). Only after understanding the nature of complexity being faced, it is meaningful

to develop and implement strategies to deal with complexity. In the literature, efforts dealing

with complexity are discussed mainly under two topics: complexity reduction and complexity

management. When dealing with complexity, the common approach would be to eliminate or

reduce the unnecessary complexity and manage the necessary complexity. As a long-term

strategy in dealing with complexity, a third item can be added to the list, which is complexity

prevention (see, among others, Wildemann 2000; Sivadasan et al. 2002b; 2004; Kaluza et al.

2006).

As an initiative to deal with SCC, Towill (1999) specifies twelve rules as a means to

simplify material (and information) flows in a supply chain. The rules highlight the needs for

streamlining material flows, synchronization, elimination of uncertainties, visibility, use of

Interactions /

Connectivity Variety

Number of elements

Non-linearity

Static

Dynamic

Dynamism

Uncertainty

Supply

Chain


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robust decision support systems, and supply chain integration (Childerhouse & Towill 2003).

Table I gives a categorization of the twelve rules according to the approaches to dealing with

complexity: complexity reduction, complexity management, and complexity prevention. Table I. Categorization of twelve rules for simplifying material flows, adapted from Childerhouse and Towill (2003,

p.20)

Rule Description

[R]eduction/

[M]anagement/

[P]revention

1 Make products those can be quickly dispatched to customers. R

2 Minimize work-in-progress stock levels. R

3 Streamline material flow and minimize throughput time M/P 4 Use the shortest planning period R

5 Take deliveries from suppliers in small batches R

6 Synchronize time buckets throughout the supply chain. M/P 7 Form natural clusters of products M

8 Eliminate all uncertainties in all processes. R/P

9 Understand, document, simplify and only then optimize (UDSO). M/P 10 Make all information flows visible throughout the chain. M/P

11 Use robust decision support systems. M

12 Achieve seamless supply chain (supply chain integration) M/P

According to Wildemann (2000), complexity reduction must precede complexity

management, which should be followed by complexity prevention. Complexity reduction is a

short-term strategy, which aims to minimize the existing variety, through product and process

elimination, standardization, and modularization. Complexity management, the mid to long-

term strategy, aims at managing the necessary complexity and involves determining methods

and metrics for SCC. The long-term strategy, complexity prevention involves all long-term

activities to avoid unnecessary complexity, e.g. redesigning organizational structure, and/or

redesigning supply chain configuration (Wildemann 2000).

Similarly, Sivadasan et al. (2002b; 2004) suggest four policy categories for operational

complexity management: to export complexity to other organizations, to charge for imported

complexity, to invest in resources to absorb complexity, and to take precautions to avoid

complexity generation. Exporting complexity means transferring the complexity within the

company to its suppliers and customers. Yet, it is not an effective response when dealing with

SCC, while it does not meet the holistic view of SCM. Charging for imported complexity can

be taken as a precautionary approach. These two categories (exporting and charging for) have

an external focus, where the remaining two categories (to absorb and to avoid) have an internal

focus. Sivadasan et al. (2002b; 2004) state that an organization’s ability to absorb and avoid

(manage and prevent) complexity is determined by its resources such as stock, capacity, time,

IT systems, and decision-making systems.

In the same vein, Perona and Miragliotta (2004) distinguish between two actions to deal

with static complexity: complexity reduction and complexity management. They discuss that

complexity reduction is reducing the complexity, and complexity management is reducing the

impact of complexity on system’s performance. Perona and Miragliotta (2004) present a


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normative complexity model where the system under study (a company/supply chain) possesses

a basic complexity. Given this basic complexity, the system adopts complexity reduction levers

and reduces its basic complexity to a level, which is called actual complexity. Next, it adopts

complexity management levers that reduce the impact of actual complexity on the system’s

performance. This new level of complexity is defined as perceived complexity and leads to

observed performances of the system. The study concludes that managing and reducing

complexity have an impact on both efficiency and effectiveness. The model of Perona and

Miragliotta (2004) enables us to understand the logical connections among complexity,

complexity reduction, complexity management and performance in a supply chain.

The positive impact of complexity management on supply chain performances is supported

by PRTM studies (Hoole 2004; 2005; 2006). The results show that success of industry leaders

stems from their ability to deal with complexity. The most important abilities are to use metrics

to track complexity, to limit the number of product offerings, and to design products to simplify

planning, supply, manufacturing, and distribution (Hoole 2006). Besides these transferable

abilities, Hoole (2004; 2005) provides a complexity reduction matrix whose dimensions are the

four of the SCOR (Supply Chain Operations Reference-model) process elements (i.e. plan,

source, make, deliver) and the supply chain performance levers (i.e. configuration, management

practices, relationships, organization, and information systems). The cells involve complexity

reduction activities such as supplier reduction, outsourcing, collaboration, and implementing

SCM tools and technologies. In line with PRTM studies’ results, five reactionary actions to deal

with complexity are listed in A.T. Kearney Report (2004): standardization, supplier/customer

reduction, eliminating non-value adding processes and activities, sharing information, and

provide flexibility. The first three actions can be categorized as complexity reduction efforts,

and the last two as complexity management.

The efforts to deal with complexity in the supply chain follow the order reduce-manage-

prevent complexity. The initial effort is to eliminate or reduce the unnecessary complexity in

the system, and then to manage the necessary complexity and prevent additional (unnecessary)

complexity when possible. Understanding the inherent complexity of the supply chain and

taking necessary actions to reduce-manage-prevent it would lead to higher quality, lower costs,

increased responsiveness, which means better performances and higher customer satisfaction. It

is also important to identify how current SCM initiatives, the companies widely undertake,

facilitate complexity management. The next section reviews the SCM initiatives and discusses

their contributions when dealing with SCC.

2.3. Supply chain management initiatives and complexity

Research findings support that reducing and managing complexity in supply chain results

in improved performance (van der Vorst & Beulens 2002; Vachon & Klassen 2002; Perona &

Miragliotta 2004; A.T. Kearney 2004), reduced costs (Perona & Miragliotta 2004; A.T.

Kearney 2004; Hoole 2005; Kersten et al. 2006; PricewaterhouseCoopers 2006), and increased


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supply chain integration (Childerhouse & Towill 2003; Sivadasan et al. 2002a). In order to

reduce or manage SCC, various studies emphasize the importance of SCM activities, i.e. supply

chain integration, coordination, synchronization, visibility, standardization, automation,

elimination of non value adding processes, and use of robust decision systems. Additionally,

dealing with complexity in supply chains becomes relatively easier with the use of advanced

SCM tools (e.g. SCOR, CPFR, Lean-Agile), which facilitate supply chain integration. Along

with these, recent developments in information and communication technologies improved the

abilities of the companies to cope with complexity in supply chains. In this respect, SCM

initiatives can be categorized into three major areas: key SCM activities, SCM tools and

enabling technologies. Next, how each category contributes to dealing with complexity in the

supply chain is discussed.

2.3.1. A review of key supply chain management activities

SCM research emphasizes the importance of integration, coordination, information sharing,

visibility, sharing risks and awards, and long-term relationships (Ganeshan et al. 1999; Mentzer

et al. 2001; Min & Mentzer 2004). These activities strongly support managing dependencies

within a supply chain, thus managing complexity of the supply chains. The studies in SCC

highlight the following activities to manage and reduce complexity:

Supply chain integration,

Increased coordination,

Information visibility,

Synchronization through the supply chain,

Standardization,

Process automation,

Elimination of non value adding processes,

Use of robust decision systems.

As Maloni and Benton (1997) put, SCM efforts are directed to increase the financial and

operational performance of each supply chain member through sharing information, technology

and planning efforts, thus reducing costs and inventories. Today many companies are trying to

break down both intra and inter company barriers with the aim of enhancing integration and

reducing complexity of their supply chains.

Integration is the key to SCM, as emphasized in the first article with the phrase “supply

chain management” by Oliver and Webber (1982, p.66). Supply chain integration embraces all

activities needed to achieve a seamless supply chain (Towill 1997), where all functions and

processes within and between companies constituting the supply chain are managed as a single

entity. Fawcett and Magnan (2002) state that true integration means alignment of objectives,

open communication, pooling of resources, and sharing of risks and awards between supply

chain partners. In line with Harrigan’s (1985) vertical integration dimensions, three dimensions


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characterizing supply chain integration can be identified: direction, scope, and level. The

direction of integration can be upstream with suppliers and downstream with customers

(Frohlich & Westbrook 2001; Fawcett & Magnan 2002). The proportion of functions involved

in supply chain integration efforts determines the scope of integration (van Donk & van der

Vaart 2005). The level of integration presents the extent of integration from a supply chain

made of functional silos to one that is fully integrated (Stevens 1989; Frohlich & Westbrook

2001). Supply chain integration leads to sustainable competitive advantage for the whole supply

chain over competing supply chains (Lummus & Vokurka 1999; Bowersox et al. 2000; Stank et

al. 2001).

A critical prerequisite to effective supply chain integration is coordination (Fawcett and

Magnan 2002). Since a supply chain is made up of many interconnected organizations and

activities; managing the supply chain entails managing the interdependencies among these

activities to achieve the ultimate goal of a supply chain, which can be to satisfy customers,

increase throughput and lower costs. The act of managing the interdependencies between

activities is called coordination (Malone & Crowston 1990; 1994). According to Lee and

Billington (1993), the concept of supply chain is about managing coordinated information and

material flows, operations, and logistics. There is a distinction made in the supply chain

literature between cooperation, coordination and collaboration, each reflecting progressive

levels of trust, commitment, and sharing of information, resources, as well as goals (see

Spekman et al. 1998; Wang & Archer 2004). However, for the purposes of this study these

three terms are subsumed under the umbrella term coordination. In order to achieve supply

chain coordination all parties in the supply chain should cooperate, coordinate their efforts and

resources, and share information.

Coordination and integration across the supply chain can be attained through

synchronization of processes and data (Chandra & Kumar 2001). Effective synchronization

enables the parties in the supply chain to interact in real time. To ensure synchronization, the

effect of a change occurring in a process, plan or data should be transferred throughout the

supply chain in real time. To achieve this, automation along with standardization of data and

processes is required.

Automating the supply chain processes enables the parties in the supply chain to

communicate faster and free from error with each other. In order to automate processes,

information systems must follow pre-agreed business data exchange mechanisms within an

enterprise and among multiple supply chain partners. These data exchange mechanisms are

usually prescribed in business process definitions.

This leads us to another crucial aspect of electronic integration: data and process

standardization. In support of data standardization initiatives, supply chain partners must agree

upon the data exchange protocol, the format, structure, and semantics of the business data they

communicate, so that their computer systems can understand and process the data precisely.

Data exchange is facilitated by standardizing processes, which involves pre-specification of


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processes and their coordination. Consortiums of manufacturers, distributors, and system

integrators are working to define and standardize e-business processes. In addition,

standardization – of materials, parts, interfaces, packaging, processes, tools, rules, and so forth –

is considered as a common complexity reduction approach (Child et al. 1991; Wildemann

2000).

Visibility is another key element of constructing the electronic supply chain. It is through

visibility – the ability to monitor processes and activities across a supply chain in real time –

that the parties in the supply chain are notified of significant deviations from plans and provided

with estimates that are more realistic. Thus, the parties can take action to reduce the effects of

uncertainty across the supply chain. Visibility to orders, inventory, and shipments across the

supply chain drive sustainable improvements in lead times, delivery reliability, and inventory

reductions (Enslow 2006). In order to achieve better visibility, supply chain partners need to

invest in the technology required to achieve it.

At this point, it is necessary to mention the contribution of information sharing to supply

chain activities. Studies show that sharing information and using information technologies have

a positive effect on both information and material flows (Cachon & Fisher 2000; Sahin &

Robinson 2002; Zhou & Benton 2007; ). That is, information sharing facilitates integration,

coordination, visibility and other key supply chain activities and in turn facilitates managing

SCC. Information sharing between parties in a supply chain becomes less demanding owing to

modern information technologies (Paulraj et al. 2006).

Figure 2. Relating integration, coordination, synchronization, standardization, automation, and visibility from SCM

aspect

On the road to a fully integrated supply chain, where complexity becomes manageable,

effective coordination of physical and information flows between supply chain partners is

necessary. For a coordinated supply chain, it is essential to standardize, automate and

synchronize the business functions and processes, and achieve end-to-end visibility. Elimination

of non-value adding processes and use of robust decision systems are prerequisite actions for

Coordination

Integ

ratio

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Standardization

Automation

Synchronization

Visibility

Su

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bu

siness p

rocesses

Su

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siness p

rocesses

Standardization

Automation

Synchronization

Visibility

Su

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Su

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the success of any complexity management initiative. Figure 2 illustrates the relationship

between SCM activities.

2.3.2. A review of supply chain management tools

The more complex the system becomes, the greater is the need for a model to manage its

complexity. Therefore, to improve the flows in a supply chain, advanced tools and methods are

developed and widely adopted in the practice such as the Supply Chain Operations Reference-

model (SCOR), Collaborative Planning, Forecasting and Replenishment (CPFR), Quick

Response (QR), Efficient Consumer Response (ECR), Vendor Managed Inventory (VMI), as

well as Lean-Agile initiatives.

Since its introduction in 1996 (Cohen 1996; Stewart 1997), the SCOR model has been

improved on a regular basis by the Supply-Chain Council (1996; 2001; 2006; 2008)

(www.supply-chain.org) and is widely adopted by industry (Cohen & Roussel 2005, p.xii). The

model is based on five core supply chain management processes: plan, source, make, deliver,

and return; and its scope spans three levels of supply chain process detail: process, process type,

and process element (Stewart 1997; Supply-Chain Council 2008). The SCOR model provides a

common framework to capture supply chain processes and helps companies to communicate

supply chain practices, measure performance objectively, identify supply chain performance

gaps and develop improvement objectives (Supply-Chain Council 2008). In turn, it enhances

the ability of the companies to understand and cope with the dynamic and complex behavior of

supply chains.

QR, ECR and VMI are time based competition methods (Mentzer 1999; Zacharia &

Mentzer 2004) that focus on reducing the level of inventory in the supply chain and improving

the replenishment accuracy and frequency based on actual product usage and stock level

information provided by the buyer (Daugherty et al. 1999). They encourage the collaborative

management of information flows and information technologies (Daugherty et al. 1999; Angulo

et al. 2004). These automatic replenishment tools contribute to complexity management efforts

in that they reduce the number of decision levels and conflicts.

An advanced automatic replenishment initiative is the CPFR, which provides a formalized

guideline for creating collaborative relationships between parties through co-managed processes

and shared information with the aim of increasing the overall efficiency in the supply chain

(VICS 2004). Different from other automatic replenishment tools CPFR unites demand

planning and supply planning under a coordinated business plan, thus it promotes end-to-end

visibility, collaborative planning, and collaborative decision-making (Barratt & Oliveira 2001).

Doing so, CPFR reduces uncertainty in the supply chain processes and creates an opportunity

for reducing complexity.

The main idea behind these tools is the need to be responsive, where agility seems to be the

answer (Lee 2004; Christopher 2000). Agility and leanness cannot be thought in isolation. Thus,

Naylor et al. (1999) introduced leagility, which positions the decoupling point according to the


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characteristics of the lean and agile paradigms. In leagile paradigm, upstream of the decoupling

point the processes are designed to be lean (level scheduled) and downstream of the decoupling

point the processes are designed to be agile (responsive) (Naylor et al. 1999; Mason-Jones et al.

2000; Towill & Christopher 2002). Lean and agile or leagile paradigms support the integrated

supply chain where the information and material flows are simplified, streamlined and

optimized, and lead times and waste are reduced (Naylor et al. 1999; Mason-Jones et al. 2000;

Towill & Christopher 2002). Moreover, the leagile paradigm contributes to complexity

management by enabling lean thinking, which promotes eliminating muda.

2.3.3 A review of supply chain enabling technologies

Supply chain enabling technologies (SCeT) cover a wide range of technologies and

systems that enable the smooth flow of products, services and information as well as the

integration of business processes across the supply chain. SCeT should be regarded as a

facilitator to deal with supply chain problems, and as an enabler of SCM activities (Bechtel &

Jayaram 1997; Kumar 2001; Sanders & Premus 2002; Singh 2003; Gunasekaran & Ngai 2004;

Gunasekaran et al. 2006; Singh et al. 2007). However, it should be noted that the success of

technology adoption depends on various variables (Patterson et al. 2003) and should be

undertaken after process improvement efforts (Poirier & Quinn 2003).

SCeT fall broadly in two categories: information technologies and information systems

(see, among others, Gunasekaran et al. 2006, Sassi 2006). In this section, these are regarded as

technologies and application softwares (in particular enterprise softwares), respectively.

By technologies, we mean communication, data capture, and transmission technologies

such as telephone, facsimile, EDI (Electronic Data Interchange), e-mail, internet, wireless

communication systems, GPS (Global Positioning System), PoS (Point of Sale), barcode, and

RFID (Radio-Frequency IDentification). All these technologies provide a means for efficient

communication between supply chain partners, which enables data synchronization and

information sharing across the supply chain, as well as providing a platform for data

standardization. Evidence presenting the benefits of adoption and use of these technologies can

be found in the literature (see, among others, Chao et al. 2007; Klein 2006; Power & Simon

2004; Singh et al. 2007).

The development of application softwares is accelerated by the advance of computer

technology (see, among others, Mabert 2007; Jacobs & Weston 2007). Beginning in 1960s with

BOM (Bill of Materials), the applications advanced into MRP (Material Requirements

Planning), MRPII (Manufacturing Resource Planning) and ERP (Enterprise Resource Planning)

by adding further functionalities to meet the increasing business requirements. The scope of

ERP applications extended parallel to the need to integrate all the functions within an enterprise

(Ptak and Schragenheim 2000, pp.3-13; Kumar and van Hillegersberg, 2000). Although the

advance of ERP presents a shift from being totally enterprise centered to enabling external

collaboration, the focus of ERP systems remains at the individual enterprise level.

Consequently, they have some shortcomings in managing supply chains, where the unit of


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analysis is a network of organizations (Akkermans et al. 2003, Verwijmeren 2004). Early

efforts to support supply chain processes produced decision support and optimization

applications called advanced planning systems (APS) (Kumar and van Hillegersberg 2000). Use

of APS resulted in remarkable improvements in supply chain efficiency and productivity. Yet a

typical APS works best in static supply chain with stable partners, which does not correspond to

today’s dynamic and demand driven environment, where the coordination of supply chain

partners and the speed of execution usually become more important than the optimization of the

supply chain (Kumar 2001). Therefore, the need for the next generation softwares arises. Both

ERP vendors and SCM oriented software (Best of Breed – BoB) providers undertake efforts to

fulfill this need. An important step in this direction is Supply Chain Event Management

(SCEM), which enables the monitoring of the supply chain and coordination with suppliers and

customers to resolve unpredicted events (Otto 2003). The next generation softwares should

primarily enable coordination, visibility and synchronization across the supply chain. A

secondary research conducted by Serdar Asan & Tanyas (2005) reveals that solution providers

offer various solutions regarding key SCM activities, where the main emphasis is on visibility

and synchronization. The study also shows that there is only modest attention focused directly

to complexity management in the supply chain. This can be attributed to the subjective and

abstract nature of the complexity concept. In order to indicate the improvements to the system,

next generation software providers can add functionalities to their software to measure and

monitor SCC.

SCeT facilitate more accurate forecasting and planning, as well as effective communication

throughout the supply chain. However, SCeT may add a degree of complexity to decision-

making (Disney et al. 2004, Hakkinen and Hilmola 2008) mainly due to the limited ability of

humans to cope with vast amounts of information (Miller 1956). Still, SCeT can be utilized to

reduce the complexity in the supply chain. Successful adoption of SCeT can eliminate most of

the complexity drivers originating from within the company and/or from interactions with

suppliers and customers in terms of information flows, which may be generated via operational

characteristics such as variations and uncertainties, and organizational characteristics such as

decision-making process, information and communication systems.

2.3.3. A Conceptual Framework

The above review reveals that SCM initiatives enable companies to reduce and manage

SCC. Integration efforts, information sharing, supply chain visibility and standardization of data

and processes ease managing complexity. SCM tools provide a model to manage flows in a

supply chain, and promote using a common language; in turn reduce complexity to some

degree. SCeT reduce uncertainties by facilitating accurate forecasting and planning through

using advanced techniques and visibility; enable effective communication throughout the

supply chain; and eliminate most of the complexity drivers originating from interactions with

suppliers and customers. The interactions between SCM initiatives and SCC efforts are not


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straightforward, but rather complex and subjective, which is difficult to precisely define and

evaluate. This paper suggests all three initiatives support the SCC management efforts in a

positive manner (See Figure 3).

Supply Chain

Complexity Management

Efforts

Supply Chain Activities

Supply Chain Enabling

Technologies

Supply Chain

Management Tools

+

+

+

Figure 3. Effects of SCM initiatives on SCC management efforts

3. CURRENT STATE OF SUPPLY CHAIN PARTNERS REGARDING SCM

INITIATIVES AND COMPLEXITY

SCC becomes a domain of interest for academics, practitioners, and consultants, as it

becomes more and more evident that the SCC hinders improvement of the supply chain

performance. However, current experiences of supply chain partners with regard to SCC are not

yet clear. To begin with, a survey research was conducted to describe the current state and

efforts of supply chain partners regarding SCM initiatives and SCC by means of a questionnaire

administered to companies located in Turkey.

3.1. Research method

3.1.1. Questionnaire design and features

The survey instrument was a self-administered e-mail questionnaire. The survey questions

were developed based on an extended literature review in order to reveal current state of

companies in the areas of SCM efforts in general, complexity related problems and efforts made

to overcome these, supply chain integration efforts, visibility of the supply chain and use of

SCeT. The aim was to collect descriptive data which gives us more insight into the current

efforts of companies regarding SCM and complexity management. A draft questionnaire was

initially pre-tested with academics and practitioners to check its content validity and


13

terminology, and modified accordingly. The modified questionnaire was then administered to

the target population.

3.1.2. Type of data, measures and scales

The survey instrument involves different question structures. Besides open ended questions

there are forced-choice questions, in which respondents are asked to choose a category, or rank

the order of a given list, or to rate each definition according to how well it depicted their

perception using a seven-point scale from 1=completely disagree to 7=completely agree. To

ensure the answers are mutually exclusive the respondents were told to skip the questions they

prefer not to answer or do not know.

3.1.3. The sampling frame and the target companies

The target companies were not limited to a single industry, but open to all companies

working in various industries because the theory of SCM should be applicable to many

industries and organizations. The principal assumption of this survey was that the target

companies apply SCM principles. Therefore, the convenient sampling technique (non-

probability sampling) was used, where questionnaires were distributed to companies those are

known to be practicing SCM. The questionnaire was addressed to the employees who were

responsible for activities included in SCM, assuming that they would understand the concepts

of SCM and the inherent complexity and they were exposed to the issues of dealing with these

concepts in practice.

3.1.4. Response quality and profile of respondent organizations

Thirty-two returns were received; thirty of which were usable for analysis. 73% of the

returning companies were large companies and the rest were SMEs (according to the Small and

Medium Enterprise definition of European Union 2003). 57% of the companies were with

foreign partnership and 43% were local companies with 100% domestic capital. The respondent

companies were from different positions in a supply chain and one third of the returning

companies participated in multiple supply chains. The questionnaires were filled by executives

from various functional backgrounds, ranging from general manager, supply chain director to

logistics, planning, and quality management.

3.2. Survey findings

3.2.1. Issues related to supply chain management efforts in general

All of the surveyed companies were actively engaged in SCM and they perceive it as a

positive endeavor and are willing to launch new SCM initiatives that would contribute to

dealing with SCC. Even with their positive attitude towards SCM, companies have reported


14

facing several obstacles during SCM activities, including communication problems, lack of

knowledge and expertise, unclear authority and responsibility definitions and poor technology.

When they were asked how they overcome these obstacles, the emerging answers were:

establish/maintain communication within and between companies, invest on new technologies

and solutions to improve synchronization and integration, facilitate continuous improvement,

establish a common understanding of definitions and terms, and benchmarking. Although the

solutions seem to cover most of the obstacles (See Table II), there are still issues the companies

have to work on collaboratively to manage the supply chain efficiently.

Table II. The main obstacles the companies face during SCM efforts and their solutions to overcome these

Obstacle Solution

Internal/external communication problems Establish/maintain communication within and between companies,

Systematic control of supply chain processes

Lack of knowledge and expertise Provide their employees continuous training,

Receive support from consultants

Lack of employee support Solicit employee suggestions,

Provide their employees continuous training

Not clearly defined authority and

responsibility –

Lack of a common understanding of definitions

Establish a common understanding of definitions

Not enough benchmark cases Facilitate continuous improvement, benchmarking

Poor technology Invest on new technologies and IT based solutions to improve synchronization and integration

3.2.2. Issues related to complexity management

The increasingly complex and dynamic nature of current business systems has created the

need to manage complexity. About three quarters of the companies we have surveyed

responded that their companies’ supply chains were complex, and noted that the primary drivers

of increased complexity include changing customer needs and expectations, higher number of

companies in the supply chain, national/international laws and regulations, and industry-specific

regulations and standards . 69% agreed that the complex structure of their supply chain causes

problems such as lower performance, higher costs, and lower profits (See Figure 4). Majority of

the companies indicated that they take action to manage or reduce the complexity.


15

Figure 4. Problems caused by complexity in the supply chain

When the companies were asked to what extent they possess the capabilities for complexity

management - which are highlighted in a recent survey conducted by PricewaterhouseCoopers

(2006) - five main gaps become evident:

ability to measure complexity,

ability to identify value adding activities,

a framework for managing complexity,

effective communications,

alignment of IT with business processes.

3.2.3. Issues related to supply chain integration efforts

The companies reported that they are engaged either in integration or in cooperation efforts

with the parties in their supply chain. The gathered data indicates that although the surveyed

companies are integrated with their LSP, first-tier suppliers and customers; complete forward

and backward integration was observed very rare. Next, the companies were asked to indicate

the integrated functions with their supply chain partners. About half of the respondents reported

backward integration (i.e. suppliers) in forecasting, planning, scheduling, logistics, distribution

and warehousing, and packaging. Forward integration (i.e. customers) activities carried out are

forecasting, planning and scheduling. Logistics, distribution and warehousing are the activities

that companies cooperate with LSP. While logistics, purchasing, and sales are considered

definitely as a part of SCM, product design/engineering and customer services remain as less

integrated functional areas.

The overall data denotes that the surveyed companies have advanced beyond the initial

stages of integration (Stevens 1989). Most of the surveyed companies are placed at the third –


16

partner collaboration – level in the supply chain maturity framework (Poirier and Quinn 2003),

where cooperation between intra-company functions, LSP, suppliers and customers evolve.

Table III presents the cross tabulation of level of integration and complexity management

efforts, which tends to support a relation between integration and complexity management

efforts. Table III. Cross tabulation of level of supply chain integration and complexity management efforts

Level of integration

First tier Extended Supply chain wide Total

Efforts to manage

SCC

low 7 2 0 9

high 11 4 5 20

Total 18 6 5 29

3.2.4. Issues related to visibility of the supply chain

With end-to-end visibility, supply chain partners can monitor and manage flows across the

entire supply chain, where supply chain maps become beneficial. (Gardner & Cooper 2003).

More than a half of the companies reported to have mapped their supply chain, which indicates

that these companies have an idea of how materials and information flow from suppliers to the

final customers, and who the key parties in their supply chain are. Thus, they can manage those

connections efficiently to increase profitability and develop a sustainable competitive advantage

(Lambert & Pohlen 2001, Fawcett & Magnan 2002). It is important to map the supply chain,

since it would allow us to see the whole supply chain that may be too large or too complex to be

seen directly (Gardner & Cooper 2003). The companies with positive responses about mapping

the supply chain were also highly involved in managing SCC (see Table IV). Table IV. Cross tabulation of supply chain mapping and complexity management efforts

Supply chain map

absent present Total

Efforts to

manage SCC

low 6 4 10

high 6 14 20

Total 12 18 30

Information and process visibility is essential to improved integration of the supply chain.

Therefore, the parties must be ready to share information. 72% of the surveyed companies

declared that they are ready to share information within the supply chain. When the companies

were asked the extent to which they have information about the processes of the other parties in

their supply chain, the responses were relatively low. On average, only one third of the

companies achieve end-to-end visibility in their supply chain. These companies were also

highly involved in SCC management efforts (see Table V).


17

Table V. Cross tabulation of supply chain visibility levels and SCC management efforts

Level of visibility

Internal First tiers Extended Total

Efforts to manage

SCC

Low 3 6 1 10

High 1 11 8 20

Total 4 17 9 30

3.2.5. Issues related to SCeT use

To manage the complexity in the supply chain and to achieve integration SCeT are

indispensable. First, the companies were asked to rank the means of communication they use to

communicate with their partners: e-mail, phone and fax were ranked top. The technology and

software use was mainly limited to barcode technology and ERP software. The reason behind

the relatively low satisfaction (see the mean values) with the SCeT use presented in Table VI

can be attributed to low rate of overall software and technology use. Despite this, most of the

companies report positively (percentage of 5 to 7) that SCeT help them to manage complexity

and improve performances. Table VI. Supply chain related SCeT use and satisfaction

Mean % 5-7

We utilize the SCM softwares fully and effectively 5,0 69%

We utilize the SCM technologies fully and effectively 4,6 59%

Use of SCM software and technologies helps us to solve problems caused by SCC 4,9 71%

Use of SCM software and technologies simplified our SCM efforts 5,2 76%

Use of SCM software and technologies improved our supply chain performances 5,3 83%

Question: Indicate your opinion (1=completely disagree, 7=completely agree)

%5-7 indicates the percentage of positive responses

3.3. Discussion of survey findings

Supply chains are complex systems where the integration and coordination of the parties

are of superior importance. Although our sample of companies is neither random nor

representative of supply chains, the survey findings give an insight into how companies view

complexity in the supply chain and which supply chain initiatives they undertake. Due to the

descriptive character of the collected data and the relatively small sample size, the results of the

survey serve as a proof of concept rather than a validation of the relationships presented in

Figure 3. However, the results of the survey can be viewed as initial evidence that the SCM

initiatives contribute to the efforts of companies in dealing with SCC.

Most of the companies reported utilizing CPFR and lean approaches to improve flows; yet

use of advanced tools for SCM is not widespread. The cross tabulations of survey data in Table


18

VII presents a difference between companies using and not using SCM tools with respect to the

level of their complexity management efforts. Table VII. Cross tabulation of SCM tools usage and SCC efforts

Using SCM tools

low high Total

Efforts to manage SCC

low 4 6 10

high 4 16 20

Total 8 22 30

Information sharing is an important concept in the success of complexity management

efforts. The surveyed companies were ready to share information with their supply chain

partners. However, the end-to-end visibility, which is the advanced level of information sharing,

has not yet been achieved. In order to progress to an advanced level of visibility, the companies

need to utilize the information systems and technologies more efficiently and/or invest more on

these.

There are certain obstacles the companies are facing in their effort to manage complexity in

the supply chain, such as communication problems, lack of knowledge and expertise as well as

unclear authority and responsibility definitions. In addition, the survey reveals the main gaps in

the companies’ ability to deal with complexity: complexity measurement, identification of value

adding activities, effective communications, and alignment of information with business

requirements. Although some efforts are undertaken to overcome the obstacles and close the

gaps, there is a lack of a common framework to guide companies in dealing with SCC.

In today’s dynamic environment, the successful companies will be the ones who recognize

the nature of the complexity in their supply chain and attempt to manage it. The surveyed

companies were aware of the complexity and indicated that they take actions to manage or

reduce the complexity. However, there is a long way to go for the companies to achieve a fully

integrated supply chain, where complexity becomes manageable.

4. CONCLUSION

Studies in the literature support that dealing with complexity results in improved supply

chain performance. Most companies consider the impact of complexity on supply chain

performances and undertake initiatives to overcome the negative effects associated with SCC,

either consciously or unconsciously. In this paper, we discuss the contribution of SCM

initiatives to management of complexity in supply chains with respect to three areas: key SCM

activities, SCM tools and SCeT.

This paper suggests that SCM initiatives enable companies to reduce or manage SCC. SCM

activities support management of complexity in the supply chain by information sharing,

visibility and standardization. In the same vein, SCM tools provide a model to manage flows in

a supply chain, thus simplifying the decision making process and eliminating some levels of

decision. Additionally SCM tools promote using a common language, in turn they reduce


19

complexity to some degree. SCeT reduces uncertainties by facilitating accurate forecasting and

planning through using advanced techniques and by enabling visibility. SCeT also enables

effective communication throughout the supply chain and eliminate most of the complexity

drivers originating from interactions with suppliers and customers. Empirical findings also

provide evidence that SCeT supports the efforts of companies to manage the complexity in their

supply chains while complementing the other SCM initiatives. The interactions between the

SCM initiatives and supply chain complexity management efforts are not straightforward, but

rather complex and subjective, which is difficult to precisely define and evaluate.

The literature review and empirical evidence reveal current gaps, which can be used to

guide future work in the area of SCC management. There is the need to distinguish between

necessary adding and unnecessary complexity. This should be accompanied with the ability to

develop a common understanding of terms and rules of the supply chain in order to

communicate effectively, which in turn minimizes conflicts. A common framework to measure

and manage the complexity would maintain the balance between the internal, interface and

environmental varieties; and assist companies in dealing with SCC.

In order to manage complexity the companies need to be able to communicate effectively,

understand inner rules of the system, balance the internal, interface and environmental varieties,

and identify and eliminate non-value adding activities,. These capabilities would enable the

companies to deal with SCC emerging from variety (e.g. by eliminating non-value adding

activities, maintaining the balance of varieties), interactions (e.g. through communication,

sharing a common language, understanding cause effect relationships), uncertainty (e.g. by

measuring complexity, understanding rules and regularities), and dynamism (e.g. via a

framework to understand cause effect relationships) in the supply chain.

This study was performed to provide a basis from which a conceptual framework would

emerge. The next phase will include investigating case histories to reveal how companies deal

with SCC, what kind of effects do SCM initiatives have on these efforts, and how these

eventually affect the supply chain performance, as well as to identify the cause effect

relationships among the critical factors.

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