Queen Margaret University

Division of Business, Enterprise & Management

Derek Wade November 2020

Logistics & Supply Chain Management: B3138

Seminar 6:
“Complexity & Risk in the Supply Chain network”
• Assignment FAQ plus any other points for clarification?

• Lecture review
• Complexity
> LSCM implications
> Mastering complexity

• Risk
> LSCM implications
> Managing the risk

• Discussion on Article: Risks in logistics-

“Managing the risks in your supply chain”. www.dmgfreight.com

 Main out takes from this article

 Questions & points for clarification.

Seminar outline
 What is ‘complexity’ in LSCM?
For the Customer ….it is more variety...... It is choice.......it is more specialised......it is
differentiation ....is it “added value”?

Is it needed?
Tesco Vs Aldi in coffee Do Customers want that extensive range to choose from?
How many Customers regularly buy ‘specialised’ coffee?
How can Aldi compete with Tesco on the
price of coffee?

Aldi has 4 SKUs.... Tesco has 168 SKUs Will Customers pay the added costs involved?

- Erodes Tesco’s economies of scale, Impacts the brand leader in addition to the full range?
much more to manage, control, more to
get wrong.

+ Gives Tesco Customers the choice & The “Value Vs Cost of Complexity” equation.
range of coffee they want.
This is business judgement call, based on facts & data that are collected
over a period.
LSCM implications – explained
Types of costs in the supply network LSCM Examples
With complexity & so many variants (SKUs) to manage …..

1 Reduced supply continuity ….mistakes will be made with some Customers not receiving the correct product at
the correct time & place.

2 Potential Obsolescence …as new products are introduced/ rationalised out. The risk of too much of the
wrong stock level of products or component parts is increased.

3 Management & Control ….the time it takes to properly manage and control increase across the fully supply
chain & supply partners.

4 Dilution of procurement scale & leverage. ….rather than ordering 1 million components of 1 specific type, ordering will be 10x
100,000. This will increase the unit price from the suppliers.

5 Managing New Product Developments (NPD) ….phasing in a phasing out of new/updated products is made more difficult, time
consuming & risky.

6 Slowing down the network ….the whole networked gets congested (‘bogged down’) & tends to slow up due to
the sheer weight of SKUs to manage & physically handle.

7 Storage & Warehousing …the physical space needed for the segregation of different SKUs, mgmt. of
perishable / fashion goods
Mastering complexity
Solution #1 Identify the source of Solution #2
Brand Value Engineering the complexity
Product/SKU rationalisation
(B.V.E.)

Be creative in seeking Focus on the

alternatives that do
not compromise the prime area of
integrity or quality of concern
the final product.

Focus on the
Does the need for component which
causes the most
complexity really add aggravation, spends the
value to the most time , most
consumer? expensive etc.
 What is ‘Risk’ in LSCM?

“Supply chain disruptions (caused by poorly managed risk) ...can have many and significant
Caused by:- impacts on both the upstream supply and the downstream availability with the Consumer”.
M Christopher 2018

Bad Communications
Managed by balancing the risk with effective planning &
Wrong data & information appropriate contingencies.

Transportation issues
Learning from the past & other’s mistakes.
Geo-political issues.
Having an effective , willing , aligned & agile supply
Bad decisions within the supply
network.
network.
(Supply Network) Risk Management is no longer just a good idea, it is essential & increasingly
‘Acts of God’ business critical in the dynamic, cut throat business environment consumers are generating”.
Slack, Chambers & Johnson 2017
LSCM implications
Types of Risk impact in the supply LSCM examples when managing risk does not go to plan
network

1 Negative Brand impact The core product is frequently out of stock in stores. Customers may choose / try an alternative & like it better or
just as good and not come back.

2 OH&S issue When an employee / contractor / Customer sustains an injury when working with / using or handling at any point in
the supply chain. When the Customer files a claim or a worker has a Loss Time Accident.

3 Inconsistent (Company) performance When the output of the company (and its effectiveness as a business) because supplies are always late, inputs from
suppliers are poor and inconsistent quality, when production lines can not operate to plan.

4 Customer disengagement The Customer is tired of ongoing issue with Quality or Service that they decide ‘enough is enough’ and abandon the
product and seek an alternative source of supply.

5 ‘Uncontrollable’ factors Every company gets into difficulty at some point in time (even the best ones) it is how they get out of the issue &
repair all the damage is the real testament of the company’s ability to manage risk.

6 Medium - Long term supply failure The true example (given earlier) of “Floods around Carlisle close Burton Biscuit Factory for 9 months
(March 2017)”. The UK run out of Custard creams & Bourbon creams. These had to be made &
imported from Holland to meet demand
7 Short term Supply failure When the product is out of stock for a few days, will the Customer retain their brand loyalty. What an be done to
‘bridge the gap’ to encourage the Customer to stay without excessive costs or impact from the supermarket giants.
Managing the risk
Understand & manage the supply network.
~ ‘End-to-end’ supply network ‘forensic’ analysis
~ Assign accountabilities under a Supply Director.
~ Understand the full supply & demand scenarios.
Identify and manage the critical paths.
~ Know where you are vulnerable (and why).
~ Minimise the pinch points/ bottle necks.
~ Constantly seek alternatives/improvements/contingencies.

Transparent & sharing

Info & Data

Improve supply network relationships and visibility.

~ Work with the supply (Tiers) within your influence to continually build & develop the relationship, ownership & trust.
~ Ensure there is a high level of sharing & collaboration throughout the supply network.

Create a Supply Network Risk Management team.

~ A team of professionals to understand and protect the supply network.
~ Proactively managing and using best practice to minimise RISK.
 Article: Risks in logistics-
“Managing the risks in your supply chain”. www.dmgfreight.com

“Badly managed inventory”

The costs involved, the disruption to production, impact on Customers, implications
on supply partners

Being “run” by “Shit happens”

“Bottles neck in the
technology supply chain”
Using technology to its • Identify & manage the risk.
= Disruptions & Impacts
full advantage , • Focus on the core risks
on Manufacturing , Costs,
harnessing all the • Work as 1 ‘end to end’ network
Quality, Customer service,
opportunities across the • Never be complacent always be
partners
full supply network vigilant
• Learn from mistakes & others

“Failure to integrate Logistics”

LSCM must be part of the overall company strategy & ways of working.
Partners must be linked & working together as 1 team