“Supply chain” and “disruption” are two key words that everyone across the globe can relate to over the last couple of years and the energy sector is no exception to that. Whether that be the global health crisis or political unrest, our clients have been increasingly realizing how complex their supply chains are. As we get used to the new normal, my clients often ask me — are we managing complexity effectively?

My name is Rishi Kinra and I am a member of the Energy and Natural Resources Practice at Oliver Wyman, with a particular focus on supply chain. After studying supply chain during my MBA, I have worked with various Fortune 500 companies to resolve their supply chain and operations issues.

A couple of years ago, I was working with a downstream chemicals company that had an incredibly complex portfolio with over 10,000 SKUs and operational setup with more than 10 manufacturing facilities, and I had an ‘aha’ moment at that time — this company is way too complex. We then worked alongside our client for over a year to help optimize complexity.

Complexity management is a topic that I am passionate about and I have seen a lot of my clients benefit substantially from this one particular lever. This is specifically important as in my experience this can lead to 500-700 basis points improvements on the gross margins. In addition to the financial impact that it creates, it has helped our clients stay agile and meet customer expectations effectively.

When speaking with clients about complexity, the conversation typically anchors around four pillars. The first is measuring cost of complexity. Over the years as companies have tried to meet customer demand or fulfill products through digital channels, the product portfolio has expanded tremendously. For example, at one of our previous clients they were adding 100-200 SKUs every year, but never discontinued any products. So, in effect, no sunset process. We helped them understand what is the cost of adding that one extra product or that one extra product line to the entire portfolio and drive the conversation around return on investment.

The second pillar is about separating good versus bad complexity. Understanding the trade-off between what is truly necessary, what is good to have versus what is indispensable is a key pillar of complexity. In my experience, often at times commercial teams overemphasize the importance of products and what the customer needs. However, when pushed back, we found out that even customers are not able to manage the complexity, and would definitely appreciate simplification of the portfolio. Hence, a multi-faceted trade-off approach needs to be developed that takes into account competitive advantage versus operational efficiencies.

The third pillar of complexity management is change management. Complexity management is not a one-time exercise, but should be viewed as a continuous improvement exercise. And, hence, requires a change in mindset from the leadership. In addition, tracking and measurements of KPIs needs to be established to ensure the benefits are sustained.

Last but not least is the fact that complexity, if unchecked, can creep into all parts of the organization, whether that be commercial offerings, procurement, organizational structure, or just the technology setup. We have often found that some companies think of complexity in a very siloed manner — typically, reduction of SKUs. However, a truly future-ready organization needs to think beyond the usual to unlock more value.

Doing some or all of these things correctly can lead to immediate and sustainable impact on the gross margins and EBITDA. Additionally, this will lead to much more efficient planning and higher customer satisfaction rates as well, which will create a ripple effect across all parts of the organization, such as 15-20% reduction in offering, 5-10% reduction in raw material cost, so on and so forth.

It's amazing to see some of our clients realize these benefits and create more value for shareholders. In the end, I would just say let's try to make our organizations more simple and success will follow.

I'm Rishi Kinra, and this is my take on complexity management.

This transcript has been edited for clarity

“Supply chain” and “disruption” are two key words that everyone across the globe can relate to over the last couple of years and the energy sector is no exception to that. Whether that be the global health crisis or political unrest, our clients have been increasingly realizing how complex their supply chains are. As we get used to the new normal, my clients often ask me — are we managing complexity effectively?

My name is Rishi Kinra and I am a member of the Energy and Natural Resources Practice at Oliver Wyman, with a particular focus on supply chain. After studying supply chain during my MBA, I have worked with various Fortune 500 companies to resolve their supply chain and operations issues.

A couple of years ago, I was working with a downstream chemicals company that had an incredibly complex portfolio with over 10,000 SKUs and operational setup with more than 10 manufacturing facilities, and I had an ‘aha’ moment at that time — this company is way too complex. We then worked alongside our client for over a year to help optimize complexity.

Complexity management is a topic that I am passionate about and I have seen a lot of my clients benefit substantially from this one particular lever. This is specifically important as in my experience this can lead to 500-700 basis points improvements on the gross margins. In addition to the financial impact that it creates, it has helped our clients stay agile and meet customer expectations effectively.

When speaking with clients about complexity, the conversation typically anchors around four pillars. The first is measuring cost of complexity. Over the years as companies have tried to meet customer demand or fulfill products through digital channels, the product portfolio has expanded tremendously. For example, at one of our previous clients they were adding 100-200 SKUs every year, but never discontinued any products. So, in effect, no sunset process. We helped them understand what is the cost of adding that one extra product or that one extra product line to the entire portfolio and drive the conversation around return on investment.

The second pillar is about separating good versus bad complexity. Understanding the trade-off between what is truly necessary, what is good to have versus what is indispensable is a key pillar of complexity. In my experience, often at times commercial teams overemphasize the importance of products and what the customer needs. However, when pushed back, we found out that even customers are not able to manage the complexity, and would definitely appreciate simplification of the portfolio. Hence, a multi-faceted trade-off approach needs to be developed that takes into account competitive advantage versus operational efficiencies.

The third pillar of complexity management is change management. Complexity management is not a one-time exercise, but should be viewed as a continuous improvement exercise. And, hence, requires a change in mindset from the leadership. In addition, tracking and measurements of KPIs needs to be established to ensure the benefits are sustained.

Last but not least is the fact that complexity, if unchecked, can creep into all parts of the organization, whether that be commercial offerings, procurement, organizational structure, or just the technology setup. We have often found that some companies think of complexity in a very siloed manner — typically, reduction of SKUs. However, a truly future-ready organization needs to think beyond the usual to unlock more value.

Doing some or all of these things correctly can lead to immediate and sustainable impact on the gross margins and EBITDA. Additionally, this will lead to much more efficient planning and higher customer satisfaction rates as well, which will create a ripple effect across all parts of the organization, such as 15-20% reduction in offering, 5-10% reduction in raw material cost, so on and so forth.

It's amazing to see some of our clients realize these benefits and create more value for shareholders. In the end, I would just say let's try to make our organizations more simple and success will follow.

I'm Rishi Kinra, and this is my take on complexity management.

This transcript has been edited for clarity