Kicking Synergy 2007 off to a fast-paced start -- well, maybe not as fast as one might go on a Harley on the open road -- Theresa Metty introduced her "war on complexity" as her first theme in a highly informative hour long presentation. Her jihad against all that is not simple and / or standardized would be music to the ears of strategic sourcing believers. Theresa began her argument by providing examples of complexity within procurement -- in both direct and indirect areas.
For example, different door hardware, different paper, pens, inspection gloves, corrugated containers, and light bulbs; different resins for injection molded parts; different shades of the same color; different chargers / power cord; and different furniture styles and colors -- these are all examples of purchasing complexity. On a personal note, Theresa mentioned that at one point in her early tenure running procurement at Motorola, the company sourced over 144 different batteries for its cell phones (which was significantly more than the number of phones that the company sold).
What happens as a result of this complex, out-of-control SKU environment? Well, companies often must inventory a greater number of items from both a production and service parts perspective. In addition, a large number of SKUs can result in less purchasing leverage which can -- and usually does -- lead to increased costs. It can also lead to a greater chance of down-time in a manufacturing environment (and even services environments as well). And let's not forget the risk of inventory write-offs due to obsolescence.
Theresa believes that from a direct procurement stand-point complexity is "born and nurtured in creative cultures which exist in companies that have invented technology". From an indirect procurement perspective, "complexity thrives in companies where indirect procurement is decentralized" or largely uncontrolled.
If these environments describe your culture and organization, don't despair. Theresa believes that it is possible to not only guard future complexity, but to reduce current complexity as well. Here, Theresa suggests a multifaceted approach. First, companies should measure complexity by creating an index that describes exactly how bad or good specific categories are from a complexity perspective. This enables you to track and measure program results, not to mention setting improvement targets in the first place.
Second, companies should proactively communicate the dangers that complexity brings to the organization. This might include sharing the index and describing how existing operating environments are dragging down performance while driving up risk.
Third, it's critical to personalize complexity by making it real (e.g., you can describe to a facilities services manager how a reduced SKU count can make their job that much easier by requiring them to manage and inventory fewer items).
Fourth, procurement organizations need to fix the issue through targeted sourcing and supply management initiatives that operate in tandem with the individual business owners to arrive at mutually desirable outcomes by lowering total cost while making the stakeholder or owner's job that much easier.
And fifth, companies need to control complexity on an ongoing basis, carefully guarding against it creeping back into the organization again. Initiatives such as part standardization in manufacturing and supplier rationalization in indirect and services (e.g., one brand of servers or a single preferred car rental company) can have a huge impact on complexity reduction. And -- if implemented and actively monitored and managed across an organization -- they can translate to tremendous bottom line impact and lower enterprise risk.