Systemic approach to supply chain management through the viable system model and the theory of constraints

Abstract

In today’s environment, Supply Chain Management (SCM) takes a key role in business strategy. A major challenge is achieving high customer service level under a reasonable operating expense and investment. The traditional approach to SCM, based on local optimisation, is a proven cause of meaningful inefficiencies – e.g. the Bullwhip Effect – that obstruct the throughput. The systemic (holistic) approach, based on global optimisation, has been shown to perform significantly better. Nevertheless, it is not widely expanded, since the implementation of an efficient solution requires a suitable scheme. Under these circumstances, this paper proposes an integrative framework for supply chain collaboration aimed at increasing its efficiency. This is based on the combined application of the Beer’s Viable System Model (VSM) and the Goldratt’s Theory of Constraints (TOC). VSM defines the systemic structure of the supply chain and orchestrates the collaboration, while TOC implements the systemic behaviour – i.e. integrate processes – and define performance measures. To support this proposal, we detail its application to the widely used Beer Game scenario. In addition, we discuss its implementation in real supply chains, highlighting the key points that must be considered.

Keywords:

• Supply chain management
• systems thinking
• viable system model
• theory of constraints
• supply chain collaboration

Acknowledgement

Borja Ponte would like to thank the Government of the Principality of Asturias for supporting his work through the Severo Ochoa program (reference BP13011).

Notes

1. The Bullwhip Effect refers to the amplification of the variability of orders along the supply chain.

2. The complexity is measured by the concept of variety, i.e. the number of possible states or behaviour modes that a system can adopt (Ashby 1956).

3. Unlike Lean Production that shares the effort throughout the whole system.

4. According to the p-diagram classification, a widely-used technique in robust engineering.

5. Instead of a traditional safety stock based on material quantities, TOC-based buffers depends upon the lead time.

6. To deepen into TOC implementation, the exceptional guide developed by Youngman (2009) is highly recommended.

7. SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis: a tool in risk analysis and business strategy.