Supply chain dynamics

Abstract The application of system dynamics models to supply chains is reviewed. The most profitable area for system modelling and design concerns the demand amplification which is frequently observed in the medium-term operation of individual businesses, which behaviour is one manifestation of the Law of Industrial Dynamics. One cause of this amplification is the time delay incurred by both 'value-added' and 'idle' operations throughout the supply chain. Hence the management-inspired drive to reduce all cycle times throughout the business is also well directed from the total systems viewpoint, as is the removal of intermediate echelons from within the chain. However, the use of system dynamics models, as well as providing qualitative forecasts of predicted performance improvement from re-design, also enables the identification of more subtle mechanisms for achieving this objective. By means of an industrial example, it is shown that a significant contributory factor to demand amplification is interaction between the 'players' involved. However, via integrating the various decision-making mechanisms (or, alternatively, by clearly separating out 'real' from 'cover' orders, and integrating the resulting information flow throughout the chain), substantial improvements to both order amplification peaks and stock-level swings are achieved. This conclusion is still appropriate when MRP II capacity planning is coupled to JIT shop flow control. Some guidelines on the comparison of five potential ways of improving supply chain dynamics are included. For convenience, these results are based on the original Forrester model, but additionally contain quantitive measures of the benefits to be expected from new ways of approaching the problem.