Day2 oci

Questions from Day 1

1. Provide an example of a combined good/service.
2. What is servitization?
3. What is effectiveness and efficiency? How are they related?
4. Harley questions

5. Which are the legislative risks associated with international supply chains?
6. Which are the strategies that help mature supply chain organisations to embed the
concept of risk into their strategy?
7. How must supply chain organisations change with the times to ensure ongoing
success?
8. What is the holistic view in sustainability?
9. Which trends are identified in the article?

Dr. Elias A. Hadzilias – OCI February 2012 1

SUPPLY CHAIN COMPLEXITY:
Dealing with a Dynamic System


Complexity definition

An intricately structured and variable system
Highly sensitive in its adjustment to the initial
conditions or to even minor changes, creating a vast
number of development possibilities
A large collection of interacting components
Difficult to understand or examine due to its design
and/or operations
A system in process, changing and developing over
time


Supply Chain Complexity Study

 Conducted by PRTM
Management consultants
and MIT in 2006.

 80 percent of the
participating companies
believed their supply chains
to be highly complex.

 Almost 60 percent of the
participants also thought
that their supply chain had a
high infrastructure cost
basis.

Three main aspects of complexity

Operational complexity
Logical complexity
Administrative complexity

The article analyses the first 2 aspects.


Operational complexity factors

 Diverse logistics with numerous transportation options (sea,
land and air), requiring that organisations make daily
decisions to remain competitive.

 Unpredictable influences on supply times, such as port
strikes, natural disasters, etc., forcing businesses to increase
their level of safety stock to maintain the level of service.

 Navigation of foreign regulations and legal restrictions.

 The need for professional cultural and linguistic specialisation
in order to benefit from the opportunities offered by the
global economy.

Globalisation forces

 Management of several production sites simultaneously
 Specialisation of production centers
 A need for customer/supplier proximity in order to minimise
transport and distribution costs
 Risk management and disaster recovery plans
 Reduced flexibility in the event of production line failures
 Planning process complexities and capacity balancing
headaches
 Making decisions on what to manufacture, where to
manufacture it and where to source raw materials
 Overall management and control of inventories and processes


Number of products/services


Informational (logical) complexity

Bullwhip effect

Demand?
Price fluctuations?
Sales promotion campaigns?

Solution: prevention, reduction and management

 Prevention of complexity is achieved by analysing the root causes of
complexity and quantifying it as a monetary value, permitting a
comparison of complexity costs with the commercial benefit of each root
cause.
 Reduction in complexity is obtained through a proper balance between
centralised and decentralised planning. Another approach is by building a
streamlined and optimal operational and business model, which pushes
the differentiation point closer to the customer…


Reduction in complexity


Complexity management examples
 Southwest Airlines: same
vessel type
 Toyota: internal
standardisation
 Dell: innovative business http://www.transbus.org/reseaux/59000.html
model

 In-class complexity discussion
 IKEA: ?
 Easyjet: ?
 Transpole: ?
 Greek railway: ?


Conclusions
SOLUTIONS TO COMPLEXITY ISSUES

 Reduction of “long tail” customers, catalog numbers, suppliers with low
sales turnover which increase complexity without adding value.

 Continuous examination of item costs along the supply chain (landed cost
analysis) and emphasis on local procurement/production decisions,
reducing total supply chain complexity.

 Pushing the differentiation point, understanding end customer demand,
standardisation of elements of which the customer is not aware and
involving the supply chain in product development processes, thus
avoiding unnecessary complexity along the chain.

 Local and lean management versus centralised, multi-system
management to reduce supply chain complexity.

THE COMPLEXITY IMPERATIVE:
HOW FINANCIAL SERVICES FIRMS
MUST GRAPPLE WITH THE
FUNDAMENTAL REALITY THAT
THEIR BUSINESS OPERATIONS AND
SYSTEMS ARE TOO COMPLEX


Complexity characteristics

 Too many process or product variants
 Too many interdependencies and interfaces
 Process bottlenecks and fragmentation
 Technology legacy proliferation
 Lack of structure and clear rules
 High cost and management effort attributed to running and
improving the organization

Executives rarely use the words “managing complexity” when describing the
challenge of upgrading the operational performance of their organizations.
Instead, they struggle to cope with the symptoms of complexity – issues that
have arisen out of underlying business decisions, policies and practices over
time.

Barriers to overcome complexity

 Complexity is structural; deeply-embedded in the business
and operating models of their institutions.
 Complexity is cultural; organizations have been
unintentionally designed to produce complexity based on
behavior that has driven profits over the last several years.
 The linkages between delivery systems and product
organizations have grown in an unstructured manner instead
of being engineered to avoid unnecessary complexity.
 Without clear top-down definition of value to the customer,
organizations will freelance and create overly complex
operations, processes and systems.


Trade-Off between Cost and Value of Complexity


Dimensions of complexity


Business model complexity drivers

 One of the major sources of complexity in financial
institutions is the proliferation of products, distribution
channels, pricing, customer segments and locations.
 In seeking to enhance a product feature, such as interest
terms or account bundling, banks all too often simply added a
new product where they lacked a product framework (i.e.,
structured, modular, hierarchical) that could differentiate
between a new product, an existing product variant, a new
product feature, a product parameter, or the associated
service dimensions – and facilitate rationalization.


Operations and process complexity drivers


Information technology complexity drivers

Inflexible, outdated code
Overlapping and redundant systems
Excessive patching and interfacing
Technology proliferation
Competing IT standards, vendors, architectures and
philosophies
Immature or under-developed IT management
practices


Governance and organizational complexity drivers

Structures, governance models, planning and
budgeting processes create non-value adding
complexity.
Autonomous organizations, along with decentralized
incentives, motivate business heads to optimize their
own units’ performance at the expense of
externalizing complexity costs to the wider group.
Most often, there is no business-aligned “operating
architecture” that would define the overall target
operational blueprint across business model,
operations and IT in a clear and binding way.


Case study from the financial sector

Major consumer finance company had a complex
product, process and IT architecture that was
restricting its growth and had driven unit costs to
levels far above peer averages.
The company decided to launch a “back to basics”
program aimed at reducing complexity front-to-back,
targeting a 10% revenue lift and a 30% cost
improvement within two years.
As a starting point, the company focused on
simplifying its product portfolio.


Key characteristics of the reengineering project


Reengineering roadmap to complexity reduction

Benchmark the organization against best-in-class
peers
Uncover the complexity drivers that need to be
remedied
Develop a simplified target operating model
Execute and manage change


MASTERING COMPLEXITY
CAPTURE THE HIDDEN OPPORTUNITY


Portfolio complexity drives operational
complexity across the value chain


1st step: collect information

Revenues and costs by product
line and profit or cost center
Production volumes by
production location and
product line Cost picture
Cost, capacity, and utilisation of by
equipment product line
Overhead related to support
functions
Inbound, outbound and
intraplant logistics.

2nd step: quantify and model three key factors

Scale: the effect of volume on costs per unit

Efficiency: relative productivity, utilisation (average
and peak), and process complexity (automation,
handovers, and standardisation)

Factor costs: input costs (such as labour), operating
costs (such as fuel or IT) and logistics costs (such as
shipping)


3rd step: create cost/value matrix


Eight strategies for mastering complexity

Make complexity transparent
Apply the “80/20” rule
Optimise the whole, not the separate silos
Segregate complexity into separate systems
Bundle features together to “standardise” complexity
Define plant and asset roles
Identify roadblocks—and delayer
Challenge assumptions and model new scenarios


Conclusions
 Most complexity-reduction efforts target existing structures
and processes.
 Thinking out of the box can propel a company forward by
orders of magnitude, leaving “business as usual”—and the
competition—in the dust.
 What would our business model look like if we offered only one
product?
 If we outsourced all manufacturing?
 If we sold only online?
 If we sold only to China?
 What impact would these changes have on production, logistics, sales,
and financial performance?
 Henry Ford’s zero-complexity approach to automobile
production proved to be a breakthrough. “People can have the
Model T in any color—so long as it’s black”.

A FRAMEWORK TO GRASP THE
COMPLEXITY OF HEALTHCARE OPERATIONS
IN ORDER TO IMPROVE PERFORMANCE


The research questions

Which aspects or factors cause complexity of
healthcare operations?

How can these different aspects be elaborated into a
framework to analyse and assess the complexity of a
particular healthcare operation in order to improve
performance?


The 4 complexity aspects

Input uncertainty
Routing complexity and routing variety
Amount of shared resources
Concurrent resource availability


Input uncertainty

 Input uncertainty is defined as a function of the number of
input possibilities in a given healthcare process.
 A large range of patients with different demands increases
the input uncertainty.
 An increase in the number of input possibilities increases the
information requirements with respect to required capacity.
 Input uncertainty can refer to uncertainty on both the unit
level and that of the individual health care process: in that
case it concerns the activities required, the routing, the
timing of activities, and the production or process time of
activities.


Reducing uncertainty: the focused factory

 In 1969, Skinner described in his seminal paper* an
electronics manufacturer that served a heterogeneous
customer base in three industries.
 The three customers had different expectations: one
emphasised low costs, the second product reliability, and the
third fast new product introduction.
 Yet, the company had decided to serve all markets from a
single factory.
 This, Skinner submitted, was an unfocused factory par
excellence, which from a normative point of view is bad
manufacturing strategy.

* Skinner, W., 1969. "Manufacturing - missing link in corporate strategy", Harvard Business
Review, vol. 50, no. 3, pp. 136-145.

Routing complexity and routing variety

Routing complexity refers to the number of separate
activities and resources in a healthcare operation,
the relationship between these activities and
resources and their restrictions.
The number of different routings of patients in one
patient group is called the routing variety.


Reducing routing variety and complexity: the
clinical pathway
Clinical Pathway: Critical Path Method (CPM) or
Program Evaluation Technique (PERT)


Amount of shared resources

 A characteristic of a hospital unit, a specialty or a patient
group is that it often shares resources with other units,
specialties or groups in the same hospital in order to achieve
high utilisation rates.
 These shared resources seriously complicate the effective
control of the flows of patients and hamper the achievement
of high service levels.
 Examples are the beds of an intensive care unit, a physician’s
capacity, and the rooms in the operating theatre.
 The benefits of shared resources in terms of high utilisation
rates should be weighed against the drawbacks in terms of
longer lead-times due to waiting times.


Addressing the shared resources: dedicated and
contracted resources
 A solution is to dedicate resources to a specified group of
patients, or to a specialty.
 Another solution is to contract resources for specified periods
in which these resources are shared between two or more
specialties, i.e. time-shared resources.


Concurrent resource availability

 The simultaneous availability of resources complicates
planning activities, and can result in waiting times, under-
utilisation of resources and high coordination costs.
 Especially, when expensive and scarce resources are involved,
the necessity for the simultaneous availability of different
resources complicates the control of these healthcare
operations.


Addressing concurrent resource availability:
healthcare teams and integrated jobs
 The need for having resources available at the same time, has
motivated hospitals to develop both collaborating healthcare
teams and integrated jobs.
 Collaborating healthcare teams deal with complexity by
integrating the required coordination mechanisms in their
way of working, e.g. the multidisciplinary meeting or the use
of boundary spanners, also known as cross-functional liaisons.
 Integrated jobs, such as the physician assistant, the nurse
practitioner or the hospital physician, integrate several
required resources into one job. Often, these jobs are
oriented to patient domain rather than to a medical specialty.


The proposed framework to analyse and assess
the complexity of a healthcare operation
 Determine which healthcare operation needs to be analysed
and assessed.
 Organise the patients in 2-3 groups
 Make a description of the healthcare operation.
 Use enterprise modelling techniques
 Elaborate the four complexity aspects in such a way that the
causes of complexity of a healthcare operation can be
diagnosed.
 Analyse the corresponding elements included in Table 2
 Make a diagnosis and analysis of the planning and control
activities used to reduce complexity.
 Cost/benefit analysis for the feasibility of the project


Testing the framework in the cardiology unit of a
Dutch hospital
 Description of the healthcare operation: interviews with
cardiologists, nurses, lab assistants and administrators, and
observations
 Diagnosing and analysing complexity aspects: interviews
with different healthcare providers, administrators and their
executives, document analysis, and data from agenda and
admission information systems
 Planning and control activities: semi-structured interviews
with different healthcare providers involved and their
executives.
 Lead-time: data from information systems, and additional
measurements of waiting times.


Research results and conclusions

Table 3…

The article provides a method to analyse and assess
complexity in order to improve different logistical
performance indicators.


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