J Intell Manuf (2007) 18:285–299 DOI 10.1007/s10845-007-0022-z A systematic approach for supply chain improvement using design structure matrix Shi-Jie (Gary) Chen · Enzhen Huang Received: November 2005 / Accepted: May 2006 / Published online: April 2007 © Springer Science+Business Media, LLC 2007 Abstract Supply chain is a complex system that involves many system elements from various functional areas. Performance of a supply chain heavily depends on the effectiveness of communication and coordina- tion among these system elements and functional areas. However, a large and complex supply chain usually makes it difficult to coordinate and thus degrades its per- formance. This paper focuses on the development of a systematic approach with the following objectives: (1) to identify and quantify the interactions among the system elements in a supply chain; (2) to decompose the large interdependent group of system elements into smaller and manageable sub-groups; and thus (3) to improve the structure of the supply chain system. A supply chain system is first decomposed into subsystems and system elements from which the interactions (i.e., independent, dependent and interdependent relationships) are stud- ied and documented by design structure matrix (DSM). Next, the interaction strengths among the related sys- tem elements are quantified. Cluster analysis is used to decompose the large interdependent group into smaller ones in order to provide a better supply chain system structure. The effectiveness of this systematic approach is demonstrated by an illustrative example. The result shows that it is able to improve the system structure of a supply chain that will be useful for the supply chain reengineering. S.-J. (Gary) Chen (B )· E. Huang Department of Mechanical and Industrial Engineering, Montana State University, Bozeman, MT 59717, USA e-mail: gchen@ie.montana.edu Keywords Supply chain system · Supply chain management · Design structure matrix · System decomposition · Cluster analysis Introduction In the modern manufacturing industry, supply chain management has become a critical issue for most man- ufacturing organizations to gain their competitive edge in today’s market. Supply chain is a complex system that involves many system elements from various functional areas. Performance of a supply chain heavily depends on the effectiveness of communication and coordination among these system elements and functional areas. Due to the increasing complexity and size of supply chain in manufacturing industry, it is common that a system element is related or inter-related with dozens of the other elements within a supply chain. The effectiveness of communication decreases as the number of related elements increases. In addition, a large and complex supply chain usually makes it difficult to coordinate and thus degrades its performance. This motivates this study to develop a systematic approach that helps improve the system structure of a supply chain. The objectives of this research are three folds: (1) to identify and quantify the interactions (i.e., independent, dependent and interde- pendent relationships) among the system elements in a supply chain, so that the supply chain system designers and managers will have a clear view of the entire system; (2) to decompose the large interdependent group of sys- tem elements into smaller and manageable sub-groups that allow the closely related elements to communicate efficiently and efficiently; and thus (3) to improve the structure of the supply chain system.