Fundamentals of

logistics
March 24, 2023
Kati Kõrbe
Topics today:
Home assignment March 17th - presentations
B: Chapter 9: Complexity of the supply chain
The sources of supply chain complexity.
The cost of complexity.
Product design and supply chain complexity.
Mastering complexity.
C: Case Studies of airline industry
Interconnectedness of global supply chains.
Reminder (again) – even if we talk about supply chains we actually mean complex
networks.
Challenges: a disruption in one node can cause unforseen consequences.
Butterfly effect - a butterfly, flapping its wings somewhere over the Amazon basin,
can cause a hurricane thousands of miles away.
Example: volcano eruption in Iceland April 2010 caused airline traffic to shut down
in Europe –disruptions in travel plans is well known, less visible was the disruption
to supply chains felt around the world.
Today: Suez Chanel, Ethiopian Airlines accident, Brexit, Iceland volcano….etc
Complexity does not mean complicated!
Complexity is a condition of interconnectedness and interdependency across a
network.
Challenge: to make forecasts – the more complex is the network and depending on
the uncertanity depends the accuracy of forecasting.
The sources of supply chain complexity.
1. Network complexity
2. Process complexity
3. Range complexity
4. Product complexity
5. Customer complexity
6. Supplier complexity
7. Organisational complexity
8. Information complexity
The cost of complexity.
Pareto law ( 80:20 proportion law) - In 1909 Vilfredo Pareto identified that 80 per
cent of the total wealth of Italy was held by just 20 per cent of the population.
80:20 rule that has been found to hold across many aspects of social and economic
life.
Most businesses will find if they perform an 80:20 analysis that they have a ‘long-tail’
of customers who, whilst significant in numbers, actually contribute very little to
overall profitability – indeed some may actually make a loss. Likewise, the same
conclusions would probably emerge from an 80:20 analysis of products.
Example:
For example, it has been suggested that if an Internet distribution channel is available
then the ‘long tail’ can become a source of profitable business. Because the ‘long tail’
represents such a large number of products, even though individual item sales levels
are low, if inventory and distribution costs can be reduced by creating a single, virtual
inventory through working with partners across multiple channels, the economics
may be transformed. To a certain extent this is the approach that Amazon has taken,
enabling it to offer a vast range of book titles (and other products) but with minimal
inventory.
Product design and supply chain
complexity.
It is important to recognise that often a significant source of supply chain complexity
is the actual design of the product itself.
1. Time-to-market and time-to-volume
2. Added complexity through lack of commonality
3. Increased replenishment lead times
4. Supply chain vulnerability
5. After sales support
6. Late stage customisation
Mastering complexity
Because supply chain complexity is such a major source of total end-to-end pipeline
cost as well as being a significant inhibitor of responsiveness, it is essential that
complexity reduction becomes a priority.
Today’s supply chain managers need to be ‘complexity masters’
NB!
It should however, be recognised that not all complexity is bad.
Through complexity that organisations differentiate themselves from their
competitors.
The challenge for supply chain managers is to understand the value that customers
seek and to find ways to deliver that value with least complexity. (different markets –
different expectations)
Supply chain and logistics complexity:
Airports and Airlines are ultimate source.
Emirates prepares: 225 000 in flight meals per day…
Boarding planes – passengers +luggage
Scheduling slots
De-icing
etc
https://www.youtube.com/watch?v=4wkvaEM4bIg&ab_channel=BusinessInsider
Boeing case study:
Attached in Moodle: 787 Dreamliner case /in your textbook page 204-205
Second article: Economist – about Boeing 737 Max 8 case.
Extreme Engineering:
https://www.youtube.com/watch?v=lapFQl6RezA&ab_channel=RealEngineering
Next week you will meet Jevgenia Kim!

We will meet again in April