Principles of general systems theory
• Total system performance is singularly important
• Individual components don’t need to be optimized
– Emphasis is on the integrated relationship between components
• A functional relationship exists between components called a trade-off
– May enhance or hinder total system performance
• Components linked together in a balanced system will produce greater end results than possible through individual performance
A systems concept example
• Customer service is an integral part of total system performance
• However,
– Customer service must also be balanced against other components
– Accommodating the customer to the extent that you put yourself out of business is not serving the customer!
– There must be a balance between cost and customer service
– Building relationships with customers is key to this balance
• i.e. customers become a component of the supply chain system
Total cost integration
• Initial network of facilities are driven by economic factors
– Transportation economics
– Inventory economics
• Cost trade-offs of these individual functions are identified, but
– A system analysis approach (i.e. total cost integration) is used to identify the least-total-cost for the combined facility network
Transportation economics
• Two basic principles for economical transportation
– Quantity principle is that individual shipments should be as large as the carrier can legally transport in vehicle
– Tapering principle is that large shipments should be transported distances as long as possible
• Cost-based warehouse justification
• Network transportation cost minimization