UK: Using IT to Master Complexity

Last Updated: 6 October 2004
Article by Julian Thomas

Most Read Contributor in UK, August 2017

Manufacturers’ supply chains are growing enormously complex. With shorter product life cycles and ever-rising customer demands, as well as the increasing spread of distribution, manufacturing, sourcing, and engineering operations around the globe, companies large and small are finding it ever more difficult to synchronise all the pieces. A new global benchmarking study from Deloitte, ‘Mastering Complexity in Global Manufacturing’, shows that only a few companies today have the attributes to not only cope with the growing complexity, but to excel within it – and have the financial edge to show for it. This article uses data from this survey to examine the way in which these leading businesses are using IT to contribute to these significantly improved returns.

The Benefits of Mastering Complexity

Firstly, let us look briefly at the results of the survey. The survey’s most striking discovery is the existence of a class of manufacturers – Deloitte has named them the ‘complexity masters’ – that seem to do everything right. The proof of their superiority is in the results: they generate profit margins up to 73 percent greater than those of other manufacturers (See Chart 1).

This effect is not limited to large businesses. The survey specifically looked at this effect in businesses with turnovers below $200 million and it was found that businesses with strong value chain capabilities working in complicated value chains come out ahead on profitability when compared with their counterparts – a 37% improvement in profitability when compared with their Quadrant 1 equivalents.

So what can we learn from the successes achieved by these ‘complexity masters’, and in particular for IT professionals, how are they using IT differently to "average" manufacturers.

Mastering complexity: synchronising customer, product, and supply chain operations

After looking at the volumes of data on the practices of manufacturers in all four quadrants, our overriding conclusion is this: complexity masters are much better than other manufacturers at managing, co-ordinating, and synchronising within and across three areas: customers, products, and supply chains. To enable then to achieve this, they are building the necessary underlying capabilities of collaboration, flexibility, visibility, and make wider use of, and generate greater benefits from, technology.

"A new global benchmarking study from Deloitte, ‘Mastering Complexity in Global Manufacturing’, shows that only a few companies today have the attributes to not only cope with the growing complexity, but to excel within it – and have the financial edge to show for it."

"Complexity masters generate profit margins up to 73 percent greater than those of other manufacturers."

In all but one case, complexity masters have a greater level of implementation of technology than other manufactures, with specifically noticeable gaps in transportation management systems, online trading exchanges, e-procurement, warehouse management systems, electronic data interchange and forecasting/demand planning software. Even where one of the other quadrants shows a similar level of investment in a specific technology (CRM and APS), the difference in the degree of implementation of these technologies between complexity masters and the other two quadrants is still substantial.

Some technologies can be categorised as "qualifiers." ERP for example is a common foundation for virtually all manufacturers, regardless of size or quadrant. The technology has been adopted at least to some extent by 85 percent of all companies surveyed, and by 96 percent of the complexity masters. In terms of visibility of information, complexity masters have better access to customer information than Quadrant 3 companies on such measures as customer service levels, customer retention rates, and customer/channel profitability.

Conclusions 

Whilst not the only factor behind the achievement of their superior results, the survey clearly demonstrates that investment in technology is one of the key levers that the complexity masters are using to help them deliver substantially improved results. However, this is not investment for its own sake, it is targeted at helping deliver the capabilities of collaboration, flexibility, visibility needed to co-ordinate and synchronise within and across the key three areas of customers, products, and supply chains

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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