Complexity-Induced Supply Chain Risks – Interdependencies between Supply Chain Risk and Complexity Management

• Corinna Engelhardt-Nowitzki
• Helmut E. Zsifkovits

Due to increasing globalisation most companies are facing the necessity to manage rising complexity. Additionally high volatility and shortened market cycles are causing a growing amount of uncertainty. With longer supply chains (e.g. due to outsourcing) and increasingly unpredictable demand and supply, the issue of supply chain risk management becomes critical. Being part of a complex supply network, a company has to meet contradicting objectives: A sufficient stability towards risks, but at the same time an appropriate and sudden flexibility towards appreciated or necessary adaptations. An amount of complexity that is low enough to provide efficiency and transparency but high enough to offer a suitably differentiated range of behavioural alternatives in order to serve individual demands and to enable a quick but adequate (re-)action towards opportunities and risks coming up unexpected. Therefore a company has to face questions such as, what amount of “interface-complexity” has to be established towards each related supply chain party, how to reduce and manage internal “process-complexity” without loosing the ability to perceive relevant signals and to perform or adapt adequately or how to improve the ability to (re-)act and adapt without increasing complexity and risk as a consequence. The presented paper provides answers to the above questions. A guideline how to develop the appropriate amount of supply chain complexity is given. It will be shown in detail, how to adapt and to apply risk management principles and tools on dynamic system requirements involving specific complexity-driven supply chain risks in order to achieve a better ability to decide even in the case of uncertainties. Recapitulating the paper presents a specific 4-step-model of risk management in supply chains.

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