Complexity in Supply Chains: A New Approachto Quantitative Measurement of the Supply-Chain-Complexity

Abstract

The increasing globalization of market is forcing hard competition, consequently resulting increased complexity in supply chains. Complexity has many negative effects (consequences) on supply chains such as high operational costs, customer dissatisfaction, time delay in delivery, excess inventory or inventory shortage (stockouts), lack of cooperation, collaboration and integration among supply chain participants etc. A supply chain consists of multiple business partners who work together directly or indirectly which is collaborated by information, material and financial flows. These flows may lead to high complexity due to the lack of information (distorted information) within supply chain participants. Uncertainty variety, diversity, numerousness etc. are some of the factors which lead to the variation between expected (planed, scheduled) and actual flows and this variation called as complexity in this present study. These factors can be originated from exogenous and/or endogenous drivers. Therefore, supply chain complexity (SCC) can be classified into two general types as internal and external from its sources. Supply chain complexity is closely correlated with total supply chain management cost. Any increase in complexity level in a supply chain has a relevant contribution to its total cost. Complexity can be reduced by an effective complexity management that provides costs reduction within supply chains. In order to manage complexity in supply chains effectively and efficiently, a four stage complexity management model is proposed to use which covers identifying, measuring, analyzing and controlling (reducing and avoiding) of complexity. After defining the complexity clearly, it is recommended to be measured so as to identify it quantitatively so that it can be analyzed, reduced and avoided. Defining the root causes of the complexity is required to improve the system complexity. However, complexity may result excess inventory which can be sometimes useful for the company, if a customer wants to pay for it. Otherwise high complexity is required to be reduced because of its high costs to the company. With respect to obtaining a quantitative measure, complexity in supply chains is defined as the quantitative variations (deviations) between actual and predicted flows caused by uncertainty and variety through material and information flows. Regarding the definition of complexity in this study, complexity will be measured by using a new proposed entropy measure based on Shannon information entropy (Shannon, 1948) which is a measure of the average uncertainty or information associated with random variable.