A Systems Approach to Supply Chain Management

In business, what people commonly refer to as ‘supply chains’ are seldom, in practice, sequential chains, nor are they solely concerned with the supply of materials or products. In fact, what people are really referring to in these instances more often resemble complex networks of entities, people, processes and relationships interconnected by flows of information, materials and finance.

Often the scope of these supply chains reach from the extraction of primary raw materials all the way through the various stages of manufacturing, distribution and use or service to final disposal or recycling – literally from cradle to grave – or indeed, cradle to grave to rebirth!

This is a complex, messy ‘thing’ in which it is difficult to predict or anticipate what effect(s) or result(s) would be obtained by acting on or making a change to a particular element within it.

Should we focus on a particular component such as a distribution centre within the supply chain and, for example, through some reductionist analytical intervention make some change to its function or operation, we may experience unintended or unforeseen consequences, positive or negative, at a different time and location in the supply chain as a result.

The systems approach provides us with a useful conceptual model that can help in understanding this complexity and can provide some guidance on how to affect the behaviour of the overall system of interest in ways that we find are helpful or useful for a particular purpose.

The essence of systems thinking is that it is a holistic and subjective approach that views wholes rather than parts from particular points of view. It provides us with a toolbox of concepts and ideas that can help us make sense of complexity and it matches well with the evolving reality of what supply chains or product systems are becoming in modern economies.

There are several advantages to taking this approach over taking the more traditional reductionist approach to studying supply chains:

1) Avoiding Unintended Consequences.

Applying a systems approach is more likely to help avoid the unintended consequences of certain actions than if a more reductionist approach is taken.

By way of example, in the financial services supply chain over the last year and a half or so we have seen a catastrophic systemic failure when, what seemed like a good and noble idea, i.e. providing access to mortgage finance to less well-off people in the US, ultimately lead to a derailing of the global financial system through a complex interaction of events with grave unintended negative consequences.

2) System Optimization over Component Optimization.

A systems approach can provide the understanding that an overall system can be optimized while at the same a particular component within it may be sub-optimized.

By way of example, in a recent project at a consumer electronics plant, the warehouse operation was reconfigured in terms of its physical layout, material location strategy and ways of working.

The objective of the change was to improve material flow and service to the production lines and reduce the quantities of inventory on the shop floor.

Viewing both the warehouse and production as part of one system allowed a view to be taken that the overall system could be optimised and improved even though more-man hours were going to have to be employed in warehouse activities.

3) Ability to tackle complexity and to identify points of leverage that will have maximum systemic impact.

In a recent project, the challenge was to increase the throughput capability of a warehouse unit that was providing production line side supply as well as supplier receipt, customer shipment and storage services to a production facility.

Observation and analysis indicated that a range of changes to the structure and operation of the facility could lead to significant increases to the throughput capacity of the warehouse. However, had we made those changes without further consideration it is likely that the anticipated improvements would not have materialised.

Adopting a systems approach led us to include within our considerations both the communications dynamic within and among the people working in the warehouse and between them and the planning department at the production plant who scheduled with suppliers and customers the deliveries and shipments into and out of the warehouse.

These proved to be the two key points of leverage that made all the difference even before the structural changes to the warehouse were even carried out!

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