System Dynamics: a new methodology for a resilient and robust supply chain Jorge Verissimo Pereira

1. 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 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. 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. 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). Introduction • 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 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. 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. AKKERMANS, H. A. & DELLAERT, N. 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(2007) A system dynamics model for dynamic capacity planning of remanufacturing in closed-loop supply chains. Computers and Operations Research, 34, 367-394. Research Development Conclusions SCM and the use of IT Acknowledgments References System Dynamics & Simulation