The final perspective I want to give you of supply chain
is the Systems Perspective.
And the whole idea here is to think of the entire supply
chain as a system that interacts with itself
and with external factors.
And what I think is helpful in when you think about systems
is to understand what is a variable, what do I make
a decision on, and what is a constraint?
What do I have to live within?
And so when you think about this system in this perspective,
it allows you to think of what you can control,
and why things get complex.
So let's give a simple example.
Here's a simple supply chain with some functional silos
that we just talked about.
We've got Purchasing, Warehousing,
Inventory Management, Material Handling, Order Processing,
Transportation and Customer Service.
And let's say you're in transportation.
Now your role there, within the silo of transportation
can be broken down into kind of a math program form, where
you've got an objective that I either
want to minimize or maximize.
And in this case, it's the objective
is to deliver at the lowest transportation cost.
So I'm hoping to minimize my transportation cost.
And then I've got a set of decision variables
that I can make decisions on.
And in this simple example, my one decision variable
is to select which carrier, which transportation carrier,
will I tender a load to each day.
And then I've got some constraints
that I have to live within.
So I have to-- I have some boundaries.
And in this simple example, everything that comes to me,
I have to ship every day, and then I
have to deliver within specified time
windows that are given to me.
So if you look at this, this is not a trivial job.
You have a lot of complications here.
But what makes it easier is that it's in my one silo.
So let's expand it a little bit.
Let's say now you own customer service and transportation.
And so you're managing both of these jointly.
Well, your model, your decisions change a little bit.
Your objective function is still to minimize your transportation
cost.
And you've still got that decision
of which carrier to select to.
But now, since I'm in customer service,
I can influence or select the time windows to deliver.
And I still have to ship everything every day.
So let's think about that for a second.
As I expand the scope, right, so now
I own transportation and customer service,
there's some interaction.
So you can think about that maybe my transportation cost
might get lower because I can now adjust my time windows,
instead of taking that as a given.
So what we're doing there, is we're
expanding our decision variables.
What was once a constraint, is now something
I can make a choice on.
And that's great, because that will lead generally
to a better solution.
But it also adds complexity, so now I have more to decide.
And let's keep this going.
So now let's look at if I expand out, and say I
own everything from warehousing to customer service.
So all of those functions.
So my objective function is still
delivering at the lowest total cost.
And I still have to decide which carrier, set my windows,
but now I can decide when to ship what from where.
So since I own the warehousing and inventory,
I might decide to replenish or fill
an order from warehouse A instead of warehouse B.
So now it's even potentially a lower cost,
because I can select where replenish from.
And I still have to deliver within a negotiated time frame,
because I select my time windows,
but the customer has to agree to them.
So you see what's happening here,
I'm expanding what I can do, my options are getting bigger,
my decision variables I'm getting more and more of them.
But it's making it more complex.
But it could lead to a better solution.
So let's keep going.
Let's keep expanding this out.
And now let's say I'm going to throw in manufacturing
and product design.
So I have some influence over that,
and I have all the other functions.
Well now you can think about the objective function
as being a lot bigger.
And now it's something like designing, building
and delivering products at the lowest total cost.
So now I can think about what are
some things I want to do in my product design that
make it easier to manage my supply chain.
They call this design for supply chain.
If I make my products a little bit smaller maybe,
I can fit more of them in a container.
If I make them more modular, so pieces can be exchanged,
maybe it's easy to stock that inventory.
So all of these kind of things.
My variables, I've got the ones that I had before,
but now I've added some other ones.
Where do I stock with which form of product?
Because maybe I'm using I'm deciding
to keep the separate parts independent until I
get an order in and finally assemble them and deliver them.
There's all these different options.
As I own more of the supply chain,
I have more variables and decisions to make.
And it might lead to a better solution,
but it makes it much more complex.
So now let's take it another step further, because before we
had all this from product design to customer service,
but the thing is that was within one firm.
And we can assume that everyone was kind of on the same team.
But now let's look at the whole supply chain.
I'm dealing with suppliers and retailers or customers that
are not on the same team.
We might not have the same targets or goals.
We might not be aligned.
Yes, as a supply chain, we want to do better.
But individually, this retailer's
being serviced by other supply chains as well.
This supplier is servicing other supply chains as well.
So they're parts of many teams of these supply chains.
But for this one, what are some of my decisions?
Well the big difference here, if I look at the supply chain,
is my objective function changes.
Before, everyone looked at all of our objective function
from a minimizing cost, minimizing transportation cost,
minimizing total cost.
Now I'm kind of maximize the availability on the shelf.
I'm trying to make sure there's always product there.
And what are some of my constraints?
Let me just jump down to the bottom.
I might have a total constraint on the total delivered cost.
So I want to maximize the number of items
that I have available to sell, subject to keeping my cost
below a certain target.
This is totally flips the way that you
can think about supply chain, because now we're
trying to drive revenue, rather than just trying
to reduce costs.
And you can see the whole laundry list
of decision variables in this simple, simple example.
They get much longer.
So how do I set up my contract relationships?
How do I determine who replenishes from whom?
Which channel member gets it?
All these other decisions.
So as I move from a individual siloed function,
from this transportation, for example, to something
that goes from end to end supply chain,
the decisions get much more complicated,
I have more variables to decide.
But the big takeaway, it changes my objective function.
And then I can start trying to increase revenue.
Use this as a revenue generating tool,
rather than just cost reduction.
So again, this is just another perspective
of a supply chain as a system.