The marginal cost of complexity

Complexity is an important issue in supply chain management; new products, new channels and new customers generate revenue but also generate cost. While sales managers tend to argue that an additional product generates ‘on top’ revenue, operations directors tend to argue that additional complexity brings disproportionate costs, often hidden. Resolving such issues involves understanding the marginal cost of extra complexity. This article looks at the marginal cost of complexity. It uses the simple but real example of picking costs in a warehouse to understand the operational implication of a marginal stock keeping unit and therefore the implications of complexity. Although the structure costs are sunk costs, the marginal operational cost may be calculated. Putting a cost on marginal complexity helps operationalise decisions on proliferation.