Centre for Strategy and Performance

Costs of Complexity

The complexity index measures how complex a manufacturing system is. It takes into account the variety of products made, the resources used, and the uncertainty in running the system. A high complexity index is not always a bad thing. It could mean a high flexibility or agility of the system responding to changing markets. Analysing the costs of complexity makes complexity tangible enabling players within a supply chain to understand where the major and minor opportunities for cost reduction lie.

Costs of complexity are the costs, involved in running a system. Like the measure of complexity itself, the cost of complexity can be divided into two categories: costs of structural complexity and costs of operational complexity.

• Costs of structural complexity include all costs generated by production in predictable circumstances. The budgeted costs of production, raw materials and labour are associated with structural complexity. These costs are determined by the variety of products, raw materials needed, type of process necessary to manufacture the products, equipment to perform the processes and handle the materials, labour, and overheads. In general, the higher the complexity of the products and the production system, the greater the cost.

• Costs of operational complexity are the extra costs caused by actual variation from the predictable state due to uncertainty. They include all unexpected costs due to customer changes, breakdowns, unnecessary stock holding, and loss of business as a consequence of shortfalls. All costs of operational complexity are non-value-added.

Links

• http://www.ifm.eng.cam.ac.uk/mcn/

Manufacturing Complexity Network organised by Cambridge, Oxford and Warwick University.

• http://www.calresco.org/

Complexity of self-organising systems. A lot of further links from this web site.

Papers/Books:

1. Frizelle G. and Woodcock E., "Measuring complexity as an aid to developing operational complexity", International Journal of Operations and Production Management, 15(5), 26-39, 1995.
2. Frizelle, G., "The management of complexity in manufacturing", Business Intelligence, London, 1998.
3. Frizelle G. and Suhov Y. M., "An entropic measurement of queueing behaviour in a class of manufacturing operations", Proceedings of Royal Society Series A, 457, 1579-1601, 2001
4. Sivadasan, S., J. Efstathiou, G. Frizelle, R. Shirazi and A. Calinescu, An information-theoretic methodology for measuring the operational complexity of supply-customer systems, International Journal of Operations & Production Management, 22(1), 80-102, 2002.

 by Gerry Frizelle, <gdmfeng.cam.ac.uk>