System Dynamics: a new methodology for a resilient and robust supply chain
Jorge Verissimo Pereira
WMG – Warwick University – UK – veriss_j@wmgmail.wmg.warwick.ac.uk
Introduction
The Supply chain management environment is characterised as complex and in
constant change. There is also a requirement for the supply chain to satisfy
demand in a flexible and agile way, creating customer value by means of the
development of its capabilities. Under this set of conditions, IT has been
considered one of the pillars which support the supply chain. However,
implementing an IT structure which satisfies the supply chain needs is not
straightforward. The literature, therefore, indicates this matter needs a tool
which supports a study of a holistic problem and the examination of new tools
and methodology to apply IT in the SCM successfully should be thought about
carefully. In view of its potential and development, the use of system dynamics
to address this situation should be considered in further research. In this work I
fill this gap in the area of study, presenting the potentialities and pitfalls of using
system dynamics and simulation as a tool to implement IT in the SCM strategy
successfully.
SCM and the use of IT
Due to global competition and increasingly selective customers, manufacturers
are being constrained to offer a greater variety of products and compete in niche
markets (Anderson, 2004; Fisher et al. 1994). In this new environment,
predicting demands, planning production and synchronising orders are major
tasks (Fisher et al. 1994). Indeed, time has become a competitive weapon, and
companies should be able to meet the demands of customers while having a
smooth flow of supply, from innovative suppliers, that meets customers’
unstable demands (Christopher, 2000). Information should therefore be used to
eliminate redundant activities and reduce lead times, substituting physical
inventory (Closs et al., 1997).
Indeed, information is even more important in a dynamic environment that
produces irregularities and disruptions (Bodendorf and Zimmermann, 2005). A
proactive gathering and communication of information on such events across
supply chains is very important. In this new situation, information technology (IT)
plays an important role.
System Dynamics & Simulation
When parts interact in a complex way, studying only the behaviour of isolated
parts can result in a misunderstanding of the of the whole . In order to solve a
problem, the focus should take into account the whole system rather than
isolated parts of it (Senge, 1992). Thus, a better understanding of the complex
dynamics involved in supply chains and in the implementation of IT application
has become crucial for superior performance of SCM (Akkermans and Dallaert,
2005). System dynamics could improve our perception of such a complex
system, our understanding of the source of policy resistance, and the designing
of more effective strategies (Sterman, 2001). Despite the fact that system
dynamics models can fulfil these requirements, and that research into supply
chains should focus on the entire network rather than isolated firms, current
system dynamics research has been focussed on theory-building, inventory
decisions, and demand amplification (Angerhofer and Angelides, 2000; Ge et
al., 2004) and there are few studies using system dynamics in supply chain
modelling (Vlachos et al., 2007).
Research Development
The author is conducting a research to develop knowledge concerned with
methodology-building for planning and implementing a modern supply chain
strategy based on intensive use of information technology, applying the system
dynamics approach for a resilient and robust supply chain.
With the purpose of conducting experiments and understanding the whole
system with its response to interventions (feedback processes and other
elements of complexity), a dynamic simulation software will be used .
In order to carry out this research the following steps will be addressed using
simulation software.
 To describe how to develop a methodology to model the employment of
IT that brings value and fulfils the supply chain priorities.
Supply chains have competitive priorities such as customer service, time,
volume flexibility and launch flexibility that need to be identified and fulfilled
when implementing IT for supporting the supply chain. This is particularly
important inasmuch as this brings real value for the chain.
 To develop a methodology to model the employment of IT that supports
successfully a complex supply chain, applying the system dynamics
approach.
Nowadays, supply chains are characterised by the necessity for more
integration and cooperation between their agents. Also, the new environment
creates a necessity for agile communication in the whole supply chain in order
to achieve flexibility. In this scenario, IT plays an important role. As a holistic
issue, a successful IT-SC design is not easily achieved. Using system dynamics
to model the complex integration of IT into the SC strategies can give some
insights about the proper way to implement IT.
To develop a methodology to enhance the model to describe a complex,
unstable and flexible supply chain which is susceptible to unpredicted
interventions, applying the system dynamics approach.
Feedbacks and delays create a tendency for a system to oscillate and are
sources of instability. All the critical sources of instability must be presented in
the model. Also, the supply chain is susceptible to unpredicted interventions.
Consequently, any methodology to implement IT in the SC should take these
features into consideration.
To analyse the impact of unpredicted interventions in order to
recommend a dynamic response to make the supply chain both more
robust and return to effective operation.
Supply chains are complex and have many sources of instability. They are also
susceptible to unpredicted interventions. Owing to policy changes outside the
control of the organization, for instance, a company can have its operation
seriously affected.
The Figure 1 depicts the methodology in a process flow.
Figure 1 - Proposed methodology flow
Conclusions
System Dynamics has the potentiality to address the issues present IT-SCM
interaction. However, the simulation software should have the capacity to
embody uncertainty into the analysis and fulfil the key tenets: to be easy to
manipulate, to make possible to add more assumptions to the model, and to
have strong validation features and a high level of mathematical power.
Acknowledgments
J Verissimo Pereira would like to thanks Chris Holloway for the support and
insights that he has given me during my doctorate, Anita Mason for her
revisions and Dr Kevin Neailey for the great support. Also I thank Jove
Logistics for its financial support in my doctorate.
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