Intro To Systems Thinking Pt2 - v1-4D2L

9/23/18
Supply Chain as a System
Material Handling
Order Processing
Inventory Mgmt
Product Design
Tr a n s p o r t a t i o n
Manufacturing
Customer Svc
Warehousing
Purchasing
Supplier
Retailer
Supply Chain as Complex Systems
How do I design the best Supply Chain?
MIT Center for

Transportation & Logistics
How to Build the Best Car?

Approach: Find the best components and combine them.
Best Engine Best Suspension Best Braking Best Seats
End Result: A complete mess!
“A system is not the sum of its parts,

it is the product of their interacEons”
Russell Ackoff
MIT Center for
Transportation & Logistics All Pictures Public Domain 3
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The Game Plan – Complex Systems

• Problem Solving
Ø Linear Thinking vs. Circular Thinking
• System Dynamics
Ø Feedback Loops
Ø Causal Loop Diagrams
Ø Time Lags & Delays
Ø Stock & Flow Diagrams
Ø Behavior over Time
Ø Simula8on Models
MIT Center for

Transportation & Logistics 4
Problems with Problem Solving
MIT Center for

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The Problem with Problem Solving

Goals/ObjecEve
Problem Decision AcEon/Result
SituaEon/Environment
• Outbound (plants to DC) transport

handled by private fleet of 53’ trucks. Reduce TransportaEon
• Tr u c k s m a ke d a i l y t r i p s t o D C s . Costs per Pallet
• Average truck uElizaEon <50%
Tr a n s p o r t a t i o n costs
DCs’ Reaction / Response? ($/pallet) are increasing.
Increase in service failures
Increased expedited shipments
Increased safety stock levels InsEtute “full truck” policy
• Number of loads to DCs reduced to ~2.5 per week

• Tr a n s p o r t c o s t p e r p a l l e t d e c r e a s e s !
MIT Center for
Transportation & Logistics Adapted from Sterman, J, 2000, Business Dynamics: Systems Thinking and Modeling for a Complex World . 6
Problem with Problem Solving

• Event-Oriented Thinking
• Assumes problem is an isolated event to be solved in isolaEon
• Linear thinking - does not consider feedback from others
• “pragmaEc, acEon oriented, alluringly simple, and olen myopic”
• SomeEmes the soluEon is worse than the original problem!!!
• Examples of unintended consequences in supply chains are legion:
Problem Myopic Fix Unintended Consequence

High Raw Increased scrap and returns;
Source from low-price vendors
Material Costs lower customer saEsfacEon
Install automated Inflexibility of system does not

High labor costs in DC
material handling allow for changes in products
ProliferaEon of Dictate component Lower market share due to less

unique SKUs commonality across all SKUs product differenEaEon
Excessive Corage industry of creaEng

Pay cash bonus for idenEfying bugs bugs to then report!
solware bugs
MIT Center for
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Moving from Linear to Circular Thinking

Decisions
Goals/ObjecEve “Side” Effects
Environment /
State of the System
Goals of Other Agents “Side” Effects
AcEons of Others
MIT Center for
System Dynamics
MIT Center for

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Feedback Loops
MIT Center for

Feedback or Causal Loops

Causal Link: captures causal relaEonship between two variables along with polarity
Positive Link: indicated by a + sign
the cause increases, then the effect increases above what it would have otherwise been
Behavior over Time:
+
eggs R chickens
+
Eme
Reinforcing Loop: A collecEon of links that form a loop that is posiEve
MIT Center for

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Negative Link: indicated by a – sign
the cause increases, then the effect decreases below what it would have otherwise been
Behavior over Time:
+
chickens B road crossings
-
Eme
Balancing Loop: A collecEon of links that form a loop that is negaEve
MIT Center for

+ +
eggs R chickens B road crossings
+ -
MIT Center for

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Causal Loop Diagrams
13

• Purpose
• Capture and communicate sources and implicaEons of interacEons
and feedback within a system
• Causal Links
• Captures relaEonship between two variables
• Must have either PosiEve (+) or NegaEve (-) polarity
All else being equal, if product quality increases

+ then sales will increaseabove what it would
Product Quality Sales have been, and vice versa.
- All else being equal, if product price increases

then sales will decrease below what it would
Product Price Sales have been, and vice versa.
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• Loops – two types based on the polarity
• Reinforcing Loop: A collecEon of links that form a loop that provides
posiEve feedback
• Balancing Loop: A collecEon of links that form a loop that provides
negaEve feedback
• Determining Loop Polarity
• Count the number of negaEve links – if odd, then balancing
• Trace the effect around the loop
+ Size of Customer - Sleeping
Sales Team SaEsfacEon
in Class -
+ + R Grades
# Delivery +
R # Orders B Delays
Booked Pressure to -
stay up late at
# Budget + night to study
Allocated for # Orders
+
Sales Team + Backlogged
15
Causal Loop Diagrams (CLDs)

• Tips for Naming Links and Loops
• Name and number your loops
• Indicate delays on your loops (more later)
• Variable names should be nouns / noun phrases
• Variables should have a clear sense of direcEon
• Variables should be posiEve (avoid un-, non-)
• Tips for Drawing CLDs
• Use curved lines for informaEon feedbacks
• Minimize crossed lines
• Avoid chart junk – KISS
• Avoid puwng all loops in a single diagram
• Iterate, iterate, iterate
Adapted from Sterman, J, 2000, Business Dynamics: Systems Thinking and Modeling for a Complex World . 16
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Time Lags & Delays
17
Delays – Taking a Shower
+ Actual Water Desired

Te m p e r a t u r e Te m p e r a t u r e
de
lay
B -
Te m p e r a t u r e G a p
Sewng on Hot
Water Shower Knob (desired-actual) +
+ Behavior over Time:
temperature
• The longer the delay the more “aggressive” the

response and the longer to reach steady state
• Delays between acEons and consequences are
everywhere . . . Eme
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Bullwhip Effect
“informaEon transferred in the form of orders tends to be distorted and can misguide
upstream members in their inventory and producEon decisions… the variance of orders may
be larger than that of sales, and the distorEon tends to increase as one moves upstream”
Lee, Padmanabhan and Whang (1997)
3M P&G Dist Ret.

Units Demanded
Units Demanded
Units Ordered
Units Ordered
Time Time Time Time
Commonly Recognized Parerns in Supply Chains:

OscillaEon – fluctuaEon in orders increase as we move upstream
AmplificaEon – the size of the fluctuaEons increase as we move upstream
Phase Lag – the impact is delayed longer as we move upstream
MIT Center for Lee, Padmanabhan and Whang, The Bullwhip Effect in Supply Chains, Sloan Management Review, Spring 1997
Stocks and Flows
MIT Center for

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9/23/18
Stock and Flow Diagrams
+
producEon inventory shipments
Inventory
ProducEon Rate Shipment Rate
Source (or sink) outside of Stock (where things

the system model accumulate)
Va l v e ( r e g u l at e s o r
Flow controls the flow)
MIT Center for

Chickens & Eggs Revisited
+ +
eggs R chickens B road crossings
+ -
+ road
crossings
R
+ B +
eggs chickens
egg laying rate hatching rate expiring rate
+
Stock and Flow diagram adapted from MetaSD blog by Tom Fiddaman
MIT Center for
Transportation & Logistics hrp://blog.metasd.com/2010/04/are-causal-loop-diagrams-useful/ 22
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Stocks vs. Flows

Stocks Flows
• Define the “state” of the system • Define the rate of change system states
• Examples: • Examples
• Balance Sheet • Cash Flow Statement
• Wealth • Income – Expenses
• Water in a bath tub • Flows in through faucet and out drain
• Inventory in a DC • Throughput (replenishment - shipments)
• Integrals • DerivaEves
Behavior over Time:
• Stock CharacterisEcs hatching rate

stock level
chickens
• Stocks have memory
• Stocks change the Eme path of flows
• Stocks decouple flows
• Stocks create delays
Eme
MIT Center for
Stock & Flow Diagrams
MIT Center for

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9/23/18
Stock & Flow Diagram – Chickens and Eggs

Causal Loop Diagram (CLD) Stock & Flow (S&F) Diagrams
+ R
eggs R chickens +
+ eggs chickens
egg laying rate hatching rate
+
Number of eggs in the Number of chickens in
system at a specific the system at a
point in Eme specific point in Eme
eggs chickens
egg egg
laying rate hatching rate
The S&F diagram helps set up a
Rate at which eggs Rate at which chickens simulaEon model of the system.
enter the system = enter the system = The level of the stock is the
f(number of chickens) f(hatching process) “state of the system” and the
flows control the rate of change.
MIT Center for
Key Take Aways
MIT Center for

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Key Take Aways (1/2)

• Complex Systems are:
• Dynamic - avoid short Eme horizons
• Tightly Coupled – avoid making decisions in a vacuum
• Governed by Feedback – avoid treaEng problems as isolated events
• Nonlinear – beware of compounding effects
• Problems with Event-Based Thinking or Linear Thinking
• Assumes problems are independent events
• Ignores feedback from other agents
• SomeEmes the soluEon is worse than the problem
• Unfortunately, these are very arracEve!
MIT Center for

Key Take Aways (2/2)

• Understanding the Dynamics of Systems:
• Feedback Loops
• Set of causal links or relaEonships
• Either reinforces or balancesbehavior
• Source of the parerns or structure of any system
• Time Lags and Delays
• All systems have some sort of delay between acEon and response
• Longer delays introduce more opportunity forinstability
• Source of many supply chain issues: e.g., bullwhip effect
• Tools to Capture and Model Systems

• Causal Loop Diagrams (CLD)
• Creates a “mind map” of the interdependencies and feedback in a system
• Stock and Flow Diagrams (S&F)
• Complements CLDs by adding flow and accumulaEon (stock) ofa system
• StarEng point for simulaEon modeling ofthe system
MIT Center for

14

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9/23/18

Supply Chain as a System

MIT Center for

How to Build the Best Car?

Best Engine Best Suspension Best Braking Best Seats

End Result: A complete mess!

“A system is not the sum of its parts,

The Game Plan – Complex Systems

MIT Center for

Problems with Problem Solving

MIT Center for

The Problem with Problem Solving

Problem Decision AcEon/Result

• Outbound (plants to DC) transport

• Number of loads to DCs reduced to ~2.5 per week

Problem with Problem Solving

Problem Myopic Fix Unintended Consequence

Install automated Inﬂexibility of system does not

ProliferaEon of Dictate component Lower market share due to less

Excessive Corage industry of creaEng

Moving from Linear to Circular Thinking

Goals/ObjecEve “Side” Eﬀects

Goals of Other Agents “Side” Eﬀects

MIT Center for

MIT Center for

Feedback or Causal Loops

Behavior over Time:

Reinforcing Loop: A collecEon of links that form a loop that is posiEve

MIT Center for

Feedback or Causal Loops

Balancing Loop: A collecEon of links that form a loop that is negaEve

MIT Center for

Feedback or Causal Loops

MIT Center for

Causal Loop Diagrams

Causal Loop Diagrams

All else being equal, if product quality increases

- All else being equal, if product price increases

Causal Loop Diagrams

Causal Loop Diagrams (CLDs)

Time Lags & Delays

Delays – Taking a Shower

+ Actual Water Desired

• The longer the delay the more “aggressive” the

3M P&G Dist Ret.

Commonly Recognized Parerns in Supply Chains:

Stocks and Flows

MIT Center for

Stock and Flow Diagrams

Source (or sink) outside of Stock (where things

MIT Center for

Chickens & Eggs Revisited

Stocks vs. Flows

• Stock CharacterisEcs hatching rate

Stock & Flow Diagrams

MIT Center for

Stock & Flow Diagram – Chickens and Eggs

Key Take Aways

MIT Center for

Key Take Aways (1/2)

MIT Center for

Key Take Aways (2/2)