Growing Complexity of Modern Supply Chain - Essay Example

Growing Complexity Of Modern Supply Chain Student’s Name Institutional affiliation Course Name Date of Submission Growing Complexity Of Modern Supply Chain Introduction Supply chain is an important part of most organization. Blecker and Kersten (2006) define supply chain as the activities that are involved in getting a services or products from a supply to a customer. Managing an efficient supply chain is important to most organizations because it ensures that a firm obtains goods or services in the right quantity and at the right time in the most cost effective way. However, Mitchell (2009, p. 16) notes that the supply chain is increasingly becoming complex, which increases supply chain risk. This document will begin by exploring the factors that have made supply chain more complex. It will proceed to analyze the features of modern supply chain that characterize their complexity. Finally, the paper will examine the challenges facing supply contract managers in the context of complexity. Reasons For The Complexity Of Modern Supply Chain Although there is debate as to the why the modern supply chain has become very complex, there are various factors which have emerged over the past few years, which are believed to have made the supply chain more complex and risky. The first reason for the complexity of the modern supply chain is globalization. The globalization experienced over the last few decades has transformed the world into a global village. Although Globalization has had many benefits in the business world by opening up markets, it has also brought with it many challenges, especially in supply chain management. Hult, Craighead and Ketchen (2010, p. 435) observe that globalization has made the management of supply chain very complex. Normally, when the entire operations of a firm are under the control of the firm itself, fewer parts are usually moved. Accordingly, it becomes easier for a company to have wider access to information. In such a situation, a firm finds it easy to determine the measure, prioritize and minimize risk that is involved in the supply chain. By contrast, in a globalized business environment, more parties are usually involved with limited information available at each point of the production process. As such, a firm finds it extremely difficult to determine the measure, prioritize and minimize risk for effective decision-making. Apple, for instance, has more than 156 suppliers across the globe that provides its subsidiaries across the continent with products for the manufacture of its electronic products (Li et al. 2010, p. 311). Accordingly, the fact that the Apple has many manufacturing plants and different suppliers across the confinement makes the supply chain complex, risky and difficult to manage. Similarly, globalization has made the market requirements to become more diverse than before. Hashemi, Butcher, and Chhetri (2013, p. 156) argue that currently supply chains are required to respond to the emerging patterns of demands, which pose a big challenge to the supply chain managers due to the complexity that comes with it. For instance, currently four-wheel drive vehicles are enjoying high demand in Australia. In India, by contrast, small, cheap cars are in high demand. As such, automobile companies such as General Motors and Toyota are compelled to customize their automobiles and offer them in a variety so as to maintain competitiveness. However, the increased demand for different products required in the manufacturing process increases the complexity of the supply chain and the manufacturing operations. The trend towards outsourcing is another factor that is believed to be causing the complexity of the supply chain. Unlike in the past when companies used to conduct all activities in-house, the trend is fast changing as companies are increasingly outsourcing their activities, thereby making the supply chain become complex and difficult to manage (Perona and Miragliotta 2004, p. 104). Today, quite a number of companies have outsourced their value chain, such as manufacturing, distribution, IT and accounting. Although outsourcing has many advantages, that make the company pursue the strategy for competitive advantage, Hoole (2006, p. 41) shows that outsourcing increases the complexity of supply chain. Because of outsourcing, manufacturers are forced to manage several product lines; each assembly from parts obtained from different suppliers. Again the parts obtained from different suppliers may need sub-assembling by another supply, thereby making the supply chain extremely complex to manage. Thirdly, the complexity of the supply chain in the modern business world is also attributed to increased level of competition for supplier partners. Accordingly, because of high competition for supplier partner, a company can no longer be sure that the low-cost bidder in a competitive tender has the capacity to deliver the products needed on time and to the right specifications. Key Features Of Modern Supply Chains Which Characterize Their Complexity The complexity of the modern supply chain is attributed to a number of factors that are worth considering promoting effective management of supply chains. The first major feature of modern supply chain is that they are characterized by many suppliers. Unlike in the past where most companies had just few suppliers to deal with, globalization has resulted in a situation where firms have multiple suppliers to deal with, which results in complexity of supply chain management. For instance, Amazon has more than 3 million suppliers across the globe. Toyota is another case example of a company that has multiples suppliers spread across the globe. The company reveals that it has more than 340 vendors spread across the globe that supply its 51 plus manufacturing plants in five different continents where it produces its automobiles (Christopher and Towill 2000, 208). Accordingly, the more vendors a company has, the more complex the supply chain becomes. The second feature of modern supply chain that contributes to its complexity is that they are getting longer. Today, companies are increasingly sourcing for services and products from low-cost sourcing nations across the globe. As such, the modern supply chain is also becoming longer since companies are increasingly finding it suitable to go beyond the sale to the final end-user customer. Although this is advantageous for a company, the longer the supply chain, the more complex it becomes. Other features of modern supply chain that contributes to its complexity include being highly agile and customized. Ways In Which The Complexity Impact On The Nature Of Supply Contracts Having a well-negotiated supply contract is important for the business success. Caridi, Pero and Sianesi (2009, p. 380) define a supply contract as the negotiated terms that define the vendor and customer relationship. Some of the terms negotiated under supply contracts include the mode of delivery of products to the customer and the payment terms to be used by the customer. A supply contract is necessary for negating a discounted price and other benefits from a supplier. Supply contract is also unnecessary because it protects the rights of both parties to the contract. Additionally, a supply contract ensures that a customer knows with certainty the nature of goods or services to be supplied by the vendor and the delivery methods to be used. Nevertheless, the complexity of the supply chain has impacted negatively on the nature of the supply contract in a variety of ways. Firstly, the complexity of supply chain has had a negative impact of supply contract in the sense companies can no longer be certain that their low-cost bidder has the capacity to supply the goods on time and with the right specifications. Additionally, the complexity of the supply chain has impacted negatively on the supply contract by making it extremely difficult for companies to determine with certainty how well the suppliers would perform in case a firm needs multiple design changes across the global firms. Further, the complexity has made it difficult for supply contracts agreements to be reached fast because many parties are involved due to increased outsourcing. Challenges Facing Supply Contract Managers In This Context The supply contract managers are facing a number of challenges emanating from the increased complexity of the supply chain. The first major challenge that supply contract managers face has to do with contract compliance. Mikulski (2001, p. 6) notes that, as companies increasingly source for materials from foreign countries, they are forced to ensure compliance with the laws governing contracts in the country. For instance, companies are increasingly sourcing for goods from low-cost countries, such as India and China. Nevertheless, compliance with the laws of the country is required, which pose a bid challenge. The second major challenge faced by supply contracts because of the complexity of the supply chain is that they cannot determine with certainty whether or not the supplier being awarded a tender for the supply of goods has the capacity to supply the goods in time and in the right specifications. This is because, with globalization and technological advancements, contracts can be reached online, through digital tendering process. However, the greatest challenge usually emerges when it comes to determining the right supplier with the capacity to deliver the goods as expected. Conclusion In conclusion, supply chain management plays an important role in ensuring the success of an organization. Supply chain management is important because it ensures availability of goods and services in the right quantity and quality all the time, thereby minimizing the risk of shortages that might result in production breakdown. However, the supply chain has become increasingly complex, resulting in increased risk. Some of the key drivers of supply chain complexity include globalization, trend towards outsourcing, and high competition for supplier, demand volatility, and control policies in operation (Childerhouse and Towill 2006. P. 358). However, these complexities are impacting badly on the supply contract negotiation and the organization at large. Therefore, it is critical that the complexities be effectively managed to ensure that an organization does not run short of supplies. Accordingly, since complexities are characterized by uncertainties, the best way to handle supply chain uncertainty is to create higher adaptability in the organizational supply chain. This would help change the structure of the supply in response to the critical changes in the global business environment. References Blecker, T., & Kersten, W 2006, Complexity management in supply chains – concepts, tools and methods. Erich-Schmidt-Verlag, Berlin. Caridi, M., Pero, M., & Sianesi, A 2009, “The impact of NPD projects on supply chain complexity: an empirical research,” International Journal of Design Engineering, vol. 2, no. 4, pp. 380-97. Childerhouse, P., & Towill, D. R 2006, Enabling seamless market-orientated supply chains,” International Journal of Logistics Systems and Management, vol. 2, no. 4, pp. 357–70. Christopher, M., & Towill, D. 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