The coronavirus pandemic has shown how vulnerable global supply chains are, and, therefore, people are widely seeking answers to the question how to renew them and enhance their resilience. Resilience refers to such things as the ability of a supply chain, organisation or society to remain functional when encountering unexpected disturbances. The previous blog posts of Juha-Pekka Anttila and Ismo Ruohomäki study the concept of resilience in more detail, and discuss the resilience analysis tool developed by VTT and the situational picture of resilience in companies. VTT has also examined the potential of applying system dynamics to the development of resilience.
What is system dynamics?
System dynamics is a modelling method based on the theories of nonlinear and feedback control systems that can be used for understanding, designing and simulating the structure and dynamics of complex systems. Social systems, such as supply chains, are dynamically very complex. Methods for enhancing resilience can be either proactive or reactive. System dynamics enables, for instance, the modelling of alternative solutions to current state issues and transformation towards the resilient target state of the future.
Black swans refer to unpredictable events which are highly improbable but have very significant consequences. It was known that a virus pandemic might occur some day, but its impacts have still taken us by surprise. Therefore, in terms of resilience and system dynamics, it is more interesting to analyse potential consequences of surprising events and preparedness for them than to predict their root causes or time of occurrence.
Benefits of system dynamics
System dynamics makes it possible to outline and test different scenarios. It can be used, for example, for bringing out problems that accumulate over time as a result of uncertainty, communication problems and decision-making, as well as any effects of disruptions on the supply chains’ service level, expenses, inventory levels, etc. System dynamics helps in creation of strategies for recovery from disruptions. System dynamics can be used when looking for answers to questions such as: How do decision-makers assess the impacts of disruptions during the supply chain planning phase? What is the supply chain's performance level in the event of partial or full disruption? How do disruptions proceed in the supply chain? What is the supply chain's performance level after disruptions? What happens when disruptions occur at different points in the supply chain? How does increased information sharing affect flexibility?
Resilience and digitalisation
Inadequate information flow in such matters as product change management may contribute to the increase in the negative impacts of disruptions. Digitalisation and enhanced sharing of information offer opportunities for improving resilience. However, alongside digital technologies, we also need to develop network structures, the trust between actors, processes, production concepts, products and services, and principles used in product design and development. System dynamics lends itself to optimising even such an entity as this.
VTT's fourfold table tool
System dynamics is well suited to be used to support strategic decision-making. Modelling can be used for establishing, analysing and documenting an overall picture and relationships between different factors. The scenarios may be related to such matters as the repatriation of production from the Far East, the profitability of investments in the new normal situation, new logistics chains, total quality costs and risks, etc. Modelling can also be seen as a means of generating new information and transferring it for the use of companies. The best opportunities for learning are created when decision-makers and stakeholders are actively involved in developing the model. VTT has developed a fourfold table tool to support the modelling of different system dynamics cases. In the fourfold table, the potential offered by system dynamics in relation to supply chain resilience can be analysed by placing the use cases on the axes labelled: modelling - simulation and design - operation.
Read also the other parts of the series of blog posts:
- The resilience of the manufacturing industry can be enhanced, Part 1: Resilience analysis
- The resilience of the manufacturing industry can be enhanced, Part 2: Situational picture