As the global trade and financial system enters an era of rising uncertainty, it is critical that firms understand the complexity of the supply chains they depend on to navigate this change.
RSM has undertaken a project to both define and measure that complexity to better understand how it has evolved over the last 15 years.
We’ve analyzed the supply chains of the 50 largest firms by revenue in the S&P 500 Index, focusing on 2009, 2014, 2019 and 2024.
The goal was to capture the structural changes caused by the financial crisis and the pandemic. We did not include firms in financial services and real estate.
While there is no single comprehensive measure of supply chain complexity, we know that as supply chains add more suppliers and customers, the challenges of managing that network become more difficult by a much greater degree.
A supply chain made up of 20 partners, for example, is much more than double the complexity of a supply chain consisting of 10 partners.
We started our analysis by adding up the total number of customers and suppliers of these 50 firms, and then applying a modified version of Metcalfe’s Law to those supply chains. Metcalfe’s Law—nominally measuring supply chain “density”— quantifies the complexity of a supply chain as it grows larger. The more members in a network, the more complex it becomes.
With this analysis, we hope to gain a clear quantitative assessment of how complex these supply chains have become.
Read more of RSM’s insights on the economy and the middle market.
The chart above quantifies the complexity of the supply chains of the 50 largest companies in the S&P 500 index. The aggregate complexity of the supply chains for these 50 firms is fully nine times more complex than in 2009, a stunning 16% compounded annual growth rate.
This project is ongoing and includes an analysis of key financial ratios for middle market companies with revenue between $50 million and $1 billion in annual revenue.
Similar to our supply chain analysis, we are finding that operating a business in 2024 is far more complicated than it was 10 or 15 years ago.
Whether one looks at the technology, people or processes, all three dimensions of business complexity are undergoing important secular changes.
How middle market companies metabolize this complexity will be a critical factor in their success.
