Closed Loop Management System: Definition & Theory

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  • 0:02 Definition of the System
  • 1:45 Closed Loop Advantages
  • 1:52 Advantage - Visibility
  • 2:21 Advantage - Compliance
  • 2:48 Advantage - Decision Support
  • 3:16 Lesson Summary
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Lesson Transcript
Instructor: Steve Wilfong RN
What defines elite companies from the competition? Value added activities - especially those that assist in supplying products and services to the market. Closed loop management systems offer this advantage and embrace end-to-end production activities to achieve success.

Definition of the System

A closed loop management system is a management system that promotes a controlled base of both preferred outcomes and feedback from the system. Implementing this management system would mean that business activities such as inventory levels, production schedules, and supply chain functions are guided not just by the sales team of continued forecasts and orders, but rather includes feedback from ongoing operations across many business units. This common style is different from open loop management systems, which support zero feedback and have all inputs driven off of set calculations designed around anticipated outcomes only.

Companies who choose to adopt and implement the closed loop management system facilitate the capacity to avoid many shortfalls.The closed loop consists of five stages:

  1. Discovery: This involves identifying internal tools, procedures, and ideas such as the mission and vision statements, SWOT analysis, competition analysis, and core capabilities to articulate a strategy statement.

  2. Modeling: The discovery platform is in turn modeled into objectives and initiatives, utilizing additional tools and procedures which should include flow charts and key performance indicators.

  3. Deployment: The deployment stage will link the strategy to the physical operation and a third set of tools and procedures such as quality management, process improvement, engineering, forecasting, planning and budgeting.

  4. Monitoring: As deployment pushes forward, necessary monitoring continues to evaluate and understand data and the business environment.

  5. Optimization: In the last stage, teams begin to evaluate strategies and optimize a key component, which in turn begins another loop.

Closed Loop Management System Advantages

The use of a closed loop management system provides some key advantages to the business: visibility, compliance, and decision support.


Let's first look at visibility. The ability to use feedback from ongoing operations provides the closed loop management system with increased visibility. A common issue faced in operations is the time and money spent in optimization and execution utilizing inefficient data that leads to poor results and reduces the ability to achieve goals. Closed loop management systems increase the real-time view of processes and grant a more dynamic response approach for the business.

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