The systems approach is a critical concept in logistics. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel.
The systems approach is a simplistic yet powerful paradigm for understanding interrelationships. The systems approach simply states that all functions or activities need to be understood in terms of how they affect, and are affected by, other elements and activities with which they interact. The idea is that if one looks at actions in isolation, one will not understand the big picture or how such actions affect, or are affected by, other activities. In essence, the sum, or outcome of a series of activities, is greater than its individual parts.
While it might be desirable to have high inventory levels in order to improve customer order fulfillment, high inventory levels increase storage costs as well as the risk of obsolescence. Those unfavorable factors must be “traded off’ with the favorable aspects of a decision before arriving at a decision on inventory levels.
Without considering the impact of decisions on the larger system, such as the firm or the distribution channel, sub optimization often occurs. That means while the individual activities in that system appear to be operating well, the net result on the total system is relatively poor performance. To understand the opportunities for improvement, and the implication of those opportunities, the system must be viewed as a whole.
Without understanding the supply chain implications of logistics decisions to improve service levels, excess inventory will begin to build up at the links along the supply chain. This excess inventory will tend to increase costs throughout the supply chain, but it serves as a buffer to protect against the uncertainty of how other chain members will behave. Thus, the system as a whole is less efficient than it could otherwise be.
The systems approach is the key to understanding the role of logistics in the economy, its role in the organization, including its interface with marketing, the total cost concept, and logistics strategy.
