Chaos and Complexity in
Supply Chain Transorganizational Development Networking
David M. Boje
October 9, 1999
The purpose here is to explore collective TD network dynamics analysis and consultation options for Supply Chain Networks. A Supply Chain Network is a web of companies who collaborate to supply a major portion or whole product to a large manufacturer, retailer, or wholesaler. Supply chain management is the integration as well as outsourcing of business processes from end user through original suppliers to provide products, services, and information that add value internal and external stakeholders. A Transorganizational Network is three or more organizations and stakeholder groups (with a stake in the Supply Chain) doing together what they can't do alone, develop more lean and green practices.

There are two basic ontologies of TD networks working their way through Supply Change Management praxis. One is to optimize transaction costs, network efficiency and customer service without attention to external social and ecological costing accounting. Simulations such as SIMPROCESS analyze alternative Supply Chain network configurations for cycle time and transportation, cost minimization but without social, ecological, or pattern dynamic chaos concerns. There are numerous transorganizational training programs for understanding the importance, complexity, and best practice "integration" and "outsourcing" approaches to developing efficient, effective, and flexible global supply chain logistics that give minimal attention to external stakeholder impact analysis beyond suppliers, customers, and service providers (e.g. Fritz Institute for Global Logistics or Logistics 99 Management Seminars). These approaches, I refer to as TD1.

The second TD2 approach is convening conference and search groups to work at the grassroots level with people who actually live and breathe the relationships of dynamics of Supply Chain Networking change processes every day. This approach is more common in Europe and takes a much more Green accounting focus in spreadsheets, environmental audits, and network dynamics flow charts. One example in the U.S. is NuThink, Inc. who does sustainable Supply Chain grassroots consultation. They use grassroots organizing combined with simulation transaction modeling tools for Supply Chain Network evaluation and design. They have free down load demos (press here). Another example is building integrated supply chain solutions without laying for thousands of employees. For example, several Ernst & Young people have a book on this topic, Supercharging Supply Chains (press here). The Navy combines integrated cost with environmental optimization (press here).

 

The Navy says "Environmental logistics adds yet another dimension to this equation since any possible environmental impact must be considered in each of the general logistics functional areas mentioned." This includes environmental impacts throughout their life cycles including de-militarization and disposal requirements.

TD consulting seeks to build trust and developing solutions in a collaborative manner, but can also take an advocacy stance to intervene in TD1 networks to control external costs. Increasingly TD1 and TD2 are coming into contested interaction due to major global trends.

 

Global Trends - There are several global trends that can be observed by a brief review of articles and studies available through the Supply Chain Network.

The first global trend is to move to "lean" and "green" distribution to complement lean and green supply and production webs. Lean stakeholder interests can be opposed to green stakeholder claims on Supply Chain performance such as demands for fuel efficiency, switching to more energy efficient transport such as rail, and pollution control of freight transport and distribution operations. There are Green Supply Chain best practices guides available to encourage firms to reduce the amount of non-renewable energy used in freight transport and emissions of nitrogen oxides, sulphur and volatile organic hydrocarbons. Green Supply Chain covers, for example depot location, planning and practices; design and construction of vehicles; delivery skills and practices; environmental auditing; fuels and oils; maintenance management; routing and scheduling; urban deliveries; use of alternative modes; use of packaging (Freight Transportation Association, 1997). It also involves such areas as energy consumed in the manufacture and disposal of transport equipment and to primary energy generation (Roth, 1997).

Second, a two-tier global structure is developing in Supply Chain management with global consolidation trends by transnational companies. There has been a consolidation of the carrier base, with many transnational companies employing a central logistics provider who in turn employs numerous sub-contractors (Radstaak & Ketelaar, 1998). Their study is based on 127 interviews with 58 global manufacturers, 45 logistics providers, 16 Supply Chain and IT consultants and eight academics. It appears integration of the Supply Chain under a central managing firm is a growing trend. For example, Ford Motor Company awarded a major contract to Ryder Integrated Logistics, Inc. (NYSE: R) to design and manage an integrated North American network for the just-in-time delivery of components to Ford's manufacturing and vehicle assembly plants (press here). This move integrates the supply chains of Ford's North American assembly plants -- fifteen in the United States, three in Canada, and two in Mexico. 20 assembly plants will integrate their 20 supply chains in order to reduce redundant delivery routes, maximize available vehicle capacity, further reduce inventories and improve the timeliness of the deliveries to better match vehicle production schedules. Anderson Consulting and IBM Global Services work together to transform the transorganizational Supply Chains into one integrated system. As we shall explore, such integration raise important ecological issues. In part this was accomplished by adopting "Supply Chain Strategist" software. From a TD theory view, such approaches focus on optimization solutions to Supply Chain networks with out attending to external costs (i.e. TD1-based thinking). Software vendors and IT consulting forms have recently co-designed products to give Supply Chain planners the ability to automate and optimize solutions decisions (Shepard & Lapide, 1999), but they do not attend to the kinds of chaos and complexity dynamics introduced below.

Third, is the new home delivery trend a blessing or a green disaster? A study of 58 home delivery schemes argues increase in traffic problems will be critically dependent on a number of issues, including, for example, strategies for reducing returns, the development of intermediary drop-off points and efficient load consolidation between retailers (Cairns, 1998).

Fourth, e-commerce is transforming a significant portion of the retail Supply Chain into demand-led value transorganizational networking. In traditional "marketplace" Supply Chain theory resources and their transport vehicles travel and move in physical-space and time networks, but with e-commerce, there is "virtual network movement" or "virtual mobility" in the market-space of "cyberspace" networking. Wal-Mart, for example has established e-network relations with its supplier Proctor & Gamble. Each time Wal-Mart sells an item, the sale automatically triggers a replenishment request at P&G. General Electric uses Internet commerce to purchase more than $1 billion worth of products over the Internet from more than 1,400 suppliers. Cisco (1999) asserts that the virtual "enterprise of customers, suppliers, and other partners that make up a networked fabric of communication and information exchange, using innovative applications of networked technologies to extend processes through the entire supply-chain enterprise. The result: dramatic improvements in customer service because inventory is always fully stocked. There are for examples, studies being done of when virtual travel and transfer can substitute for physical travel (Crowley, 1998). Richmond, Poser, & O'Sullivan (1998) in another example did an interview study to develop case studies of firms such as Safeway, Tesco, Shell and BOC moving to e-based alternatives.

Fifth, Grace Ann Rosile and I teach environmental auditing. This to us is odd since, neither of us are accountants. But, there are so few U.S. accountants or accounting colleges, for that matter that teach the stuff. In the meantime, the global trend in Supply Chain Management is to account for costs that reflect their true social, environmental or economic cost patterns. We find the environmental auditing trend is stronger in Europe but accelerating in the U.S. Accounting legislation and regulation may have to be used to effect a switch in environmental auditing practices in U.S. Supply Chains.

Sixth, we think an emerging trend with great promise is to combine storytelling and chaos/complexity network simulation and modeling topographical tools. One trend in TD is to develop grassroots organizing approaches to Supply Chain Networking in conjunction with advanced simulation modeling techniques for NuThink, Inc. grassroots and for their free simulator download options. Grace Ann Rosile and I are working in similar directions with Mike Coobs as the NMSU Physical Science Laboratory.

There are transorganizational associations forming such as the Thames Valley Supply Chain Network to promote best practice in purchasing and materials management. The network also seeks to strengthen the existing supply chain relationships and form new ones (press here). The Freight Transport Association in the UK is another example of a transorganizational Supply Chain Network. They analyze problems and distribute solutions in the form of techniques, technology, and Supply Chain management procedures among members. You can get a list of Supply Chain Transorganizational Network associations (press here) spreading throughout England, Scotland and Wales. There is also the European Network for Integrated Materials Management (ENIMM), which spreads best practice throughout Europe. Many Transorganization Networks are organized around diffusing best practices. Network groups normally operate through steering groups (press here) for more examples. I believe this TD Association formation trend will spread globally.

Each of these trends in Supply Chain networking has opportunities to apply TD chaos and complexity analysis. See TD Gameboard for a summary of TD networking. The basic approach is to convene TD steering and search conferences among Supply Chain participants and stakeholders with an interest in Supply Chain network dynamics.
 

Transorganizational Development (TD) in Supply Chain Webs - Supply Chain TD Networking involves the application of chaos and complexity theories, storytelling domain content analysis, and computer simulation to explore multi-organizational system dynamics such as global and local spatial analysis of freight patterns. Commodity Flow Survey Analysis can be adapted in TD work by collecting stories of lean and green contextual impact of Supply Chain networking dynamics (Vanek, F M and E K Morlok, 1999). Their approach disaggregates commodity flows to show contribution of specific commodity groups to energy efficiency choices.. Supply Chain networks are defined as supply-origin and supply-destination nodes, dyadic inter-node links, and overall freight and virtual transaction topographies reconfiguring over time. While simplistic node-link network mapping gives very limited decision information, I assume content analysis of the story of dyadic linkages and shifts in configuration is required to trace chaos and complexity dynamics. Unlike simple network display, simulation study may also be required to capture complex interactions unfolding in Supply Chains over time in order to trace costs and other constraints associated with collective network dynamic. I assume storytelling and topography simulation may both be required to comprehend complex and chaotic Supply Chain collective network dynamics. Consultation consists of facilitating change through collaborative involvement of shippers, carriers, and community stakeholders in search conferencing and action research to improve energy efficiency in Transorganizational Supply Chain networks.

Supply chains according to complexity theory increase in their complexity as the number of nodes increases (Berry, Murtagh, McMahon, Sugden & Welling, 1998). They also argue that genetic algorithms can be an efficient method to locate a good solution quickly in 1- to 50 node networks. Their method mimics the process of evolution in the selection of a solution based on the combination of previous, 'parent' solutions, with an element of mutation included. As the number of nodes in the Supply Chain increases, logistical decisions about delivery operations, stockholding, warehousing and economies of scale get more complex. When is it better to consolidate, substitute providers, outsource, or warehouse? KMPG consulting (1998) has done a study of the global automotive supply chain using the concept of a "supply web" to indicate the complexity of relationships that exist between manufacturers and tiers of suppliers. The study points to a possible saving of $500 million spent, within Europe, on in-bound 'unplanned' logistics as a result of schedule fluctuations. "The importance for supplier development and inventory management is highlighted with a figure of $10 billion calculated as the European cost of line stoppage due to unreliability in product and supply."

Information Technology (IT) is being applied to the problems of "virtual logistics," "efficiency," and the "environmental impact" of Supply Chain networking. Greater economies of scale can be achieved through Internet links to network Supply Chains. Efficiencies can be obtained by monitoring network dynamics. More ecologically sustainable options for supply routing, product choice, pollution, congestion etc. are promised. Freight transport decision making is an integral part of a sustainable production and distribution Supply Chain. There are trade-offs and risk involved with Just-In-Time (JIT) Supply Chain decisions when freight is hauled through congested traffic patterns.

TD consulting can positively affect patterns of supply chain network in a given community by convening stakeholders to affect supply transport options and patterns. "Supply chain design models are making decisions worth millions of dollars, usually without integrated analysis of the variability of the proposed system" (Hane & Sudar, 1998) A TD search conference can be convened to implement measures of network efficiency and sustainability such as 'freight intensity' (ratio of total tonnage-miles to GDP) and 'freight traffic intensity' (ratio of vehicle-miles to GDP). Such measures are being attempted in the UK. With population increases in most metropolitan areas truck congestion is more common in highway networks and is forecasted to get even worse. Highway infrastructure and capacity is not expanding fast enough and environmentalists seek to block attempts to pave over more land. The result is that multiple stakeholders beyond owners of the Supply Chain are demanding network restructuration that is more eco-friendly. With truck traffic growth, some are arguing for taxes on Supply networks (McKinnon, 1998). McKinnon's interview study found that Supply Chain managers are responding to such pressures by such actions as increased backloading, improved vehicle routing, greater load consolidation, the redesign of packaging and changes in the ordering system.

Supply chains according to chaos theory can be viewed as system that is highly sensitive to initial conditions. According to Wilding (1998) "an infinitesimal change to a system variable's initial condition may result in a completely different response." Wilding argues that, in supply chain networks, chaos can be generated by both management decision-making and the computer control algorithms.

The ground moves in a Supply Chain network such that the collective dynamics of the system at conditions far from equilibrium can be shifted in many sectors by a what one or two links in the chain do. In sum, complex response patterns result from what a supply chain manager, a computer program protocol, or suppliers do in a seemingly benign and isolated part of the network.

 
References
Berry, L. M., B A Murtagh, G B McMahon, S J Sugden & L D Welling
1998 " Genetic Algorithms in the Design of Complex Distribution Networks" International Journal of Physical Distribution and Logistics Management, Vol. 28 (5).

Cairns, S.
1998 "Home Delivery: Environmental Solution or Disaster?" Institute of Logistics, Corby.

Cisco
1999 "White paper: The Smart Supply Chain" at supply.se-com.com

Crowley, J. A.
1998 "Virtual Logistics: Transport in the Marketspace." International Journal of Physical Distribution and Logistics Management, Vol 28, No 7 (Theme issue on 'Virtual Logistics')

Freight Transport Association
1997 "Environmental Best Practice Guide." Available for free by contacting FTA, Hermes House, St John's Road, Tunbridge Wells, Kent TN4 9UZ Tel: (01892) 526171.

Hane, Christopher & Andrew Sudar
1998 " Collaborative Supply Chain Design Using Optimization & Simulation." INFORMS Conference presentation.

KPMG Consulting
1998 "Europe on the Move: The KMPG Review of Automotive Retail and Manufacturing." By J Bentley, M Woodward, A Bacon and J Rodger Publisher: KPMG.

McKinnon, A C
1998 Logistical Restructuring, Freight Traffic Growth and the Environment. In Banister, D. (ed.) 'Transport Policy and the Environment' London: E&FN Spon, (ISBN 0 419 23140 4).

Navy
1999 " Environmental Logistics and Cost Optimization in Support of Joint Vision 2010" by Commander Edward Sweeney, SC, USN, Director, Pollution Prevention Division, Mr. Kevin Fitzpatrick, Deputy Assistant Commander, Ashore Support, Mr. Sandi Mukherjee, Environmental Engineer Naval Supply Systems Command, Mechanicsburg, Pa.

Radstaak, B. & M H Ketelaar
1998 "Worldwide Logistics: The Future of Supply Chain Services." Publisher: Holland International Distribution Council Contact: HIDC, 25 Koninginnegracht, PO Box 85599, 2508 CG The Hague, The Netherlands

Richmond, C, T Power & D O'Sullivan
1998 "E-Business in the Supply Chain." Financial Times Management Reports (in association with IBM) .

Roth, Anders.
1997 "Environmental Criteria for Goods Transport." Swedish Society for Nature Conservation, Goteborg. For free report, contract Swedish Society for Nature Conservation, PO Box 7005, SE-402 31 Goteborg, Sweden e-mail: Natuskyddsföreningen.gbg@snf.se

Shepard, Jim & Lapide, Larry
1999 "Supply Chain Planning Optimization: Just the Facts." AMR Research, Inc. paper sponsored by Anderson Counsulting.

Vanek, F M and E K Morlok
1999 "Improving the Energy Efficiency of Freight in the United States Through Commodity-based Analysis: Justification and Implementation." Transportation Research Part D, forthcoming Publisher Pergamon

Wilding, R.
1998 "Chaos, Complexity and Supply Chain." Logistics Focus, vol 6 (8).

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