What are complex purchases and how to manage them
The vast majority of organizations focus on a single goal: to grow. Of course, it is not an easy task: as the business grows, more challenges need to be solved. In 1972, Larry Greiner, an American management professor, identified the five stages of business growth – and his model is still used to anticipate possible difficulties to be overcome.
On the way to reaching all phases towards “success”, companies deal with the increase in complexity within their organizations. It can be said that at the stage described by Greiner as “growth through alliances”, in which joint ventures, mergers and acquisitions are made, maintaining the original identity of a company, its processes and its culture is quite a task.
On the “outside”, executives are concerned with reviewing products and services, aiming to offer the customer an easy, simple and direct purchasing experience.
By combining both purposes, it is possible to understand, in summary, that as organizations grow – and their plans become more ambitious, with more people under the same management – the complexity of maintaining the organization also increases. This factor, which may seem insignificant or even “intuitive” at first glance, is gaining more and more attention from companies and executives, especially in the purchasing sector.
But, before entering the sector in depth, it is necessary to understand what complexity is and how it is defined. In the book Managing Complexity, George Rizevzki defines it as follows:
“Complexity is a characteristic of an open system that consists of a large number of diverse, partially autonomous, richly interconnected components, often called agents. There is no centralized control […] it is uncertain without being random ”.
In addition to the negative side of creating uncertainty, the author points out that complexity brings an opportunity for companies in different sectors, just like any crisis. The evolution of technology and the economy, in addition to globalization, are some positive effects presented in response to this factor over time.
In terms of sectors, the supply chain is cited as an example in the book to clearly illustrate how it is possible to bring about improvements by overcoming complexity in terms of uncertainty and amid unforeseen events.
In the same vein, you can read our article on how to make the supply chain more resilient.
Supply chain complexity
Given the importance of the sector – and its subsequent ability to deal with uncertainty and, therefore, complexity – executives have an increasingly refined look at this topic. If complexity management was ever seen as a secondary task, today it is a priority.
A survey conducted with Chief Procurement Officers (CPOs) recently has shown that “complexity management” has become one of the top five annual objectives, as part of their goal programs.
A study points out that there are three types of complexity in the supply chain (static, dynamic and decision-making) which correspond to the way they are generated: a physical situation, organizational characteristics, of internal or external origin, supply or demand.
To solve them, the common approach is to reduce or eliminate unnecessary complexity in this process, and then deal with the complexity needed to re-analyze it. The “necessary” complexity can be defined as what the consumer or the market is willing to pay, that is, something that will become a competitive advantage.
Another study offers a more pragmatic approach, summarizing the sources of complexity in the supply chain as follows:
- Customer accommodation: customers expect increasing speed and visibility of the process, and variety and customization of products;
- Globalization of operations: as supply chains expand into more varied global customer markets, substantial variations in existing supply chain processes must occur;
- Supplier complexity: globalization means developing and maintaining strategies to overcome the complex and often serious problems associated with local sourcing;
- General business and supply chain trends: the industry’s push for omnichannel supply chains is fueled by day-to-day business concerns like technology turnover or company mergers.
How professionals can prepare for it
Being prepared for changes is essential – as well as knowing how to implement them. According to Bain & Company, reducing complexity depends on the following managerial skills:
- Understand the sources of complexity and examine the trade-offs between operations and their variety or customization for customers;
- Identify opportunities to simplify products, organizational structures, business processes and information systems to save costs while strengthening basic capabilities and increasing the focus on serving target audiences;
- Take measures to contain the return of complexity, reviewing the obstacle rates for new products and other expansion activities;
- Simplify decision-making, clarifying functions and processes.
Within the supply chain, consultants highlight “flexibility” and “innovation” as key factors to perform this task, allowing companies to use them as an important part to protect themselves from fraud and to obtain more benefits.
Soluparts fits this objective, since our mission is to facilitate the work of indirect materials buyers through a wide network of manufacturers.
In this sense, the use of sensors, big data and attention to technologies, such as machine learning, are fundamental points for professionals. In this way, it is possible to organize information from different sources and have a clear sense of priorities x complexity within the organizational environment.
Examples of this are already real: one of them, supplied by McKinsey recently, shows that a leading forklift supplier is investigating how the equipment can act as a big data hub that collects all types of data in real time, which can then be combined with ERP and Warehouse Management System (WMS) data to identify additional waste in the warehouse.
See how Business Intelligence can help you with this complex data analysis.
From a personal point of view, factors such as access to leadership, combined with a full understanding of customers and collaboration with suppliers are considered essential for professionals to keep in mind when dealing with complexity.
This is just one aspect of this theme. Organizations can begin to look at this more consistently in order to ultimately achieve significant gains from the “ocean of data” to which they have access.
On our blog, we cover various trends in the supply chain for the new era, so that you can be up-to-date with the big changes we are experiencing.