Supply chain dynamics: analysis of inventory vs. order oscillations trade-off

Abstract

The use of Advanced Planning Systems (APS) has become widespread in many industries. This paper presents an analysis of how safety stock policies, as modelled in many APSs, can induce variation in production and distribution order quantities along the supply chain. The effect is illustrated using a system dynamics model of the supply chain of a Mexican branch of a multinational food and beverage company. Real demand data is used in the simulation. An explanation is provided for these production order distortions and modifications to the operating policies and the APS linear programming model are proposed to reduce these effects. Computational results and illustrative examples are presented.

Keywords:

• Inventory
• Production
• Supply chain dynamics
• Linear programming

Acknowledgements

This research was partially supported by the ITESM Extended Enterprise for Mass Customisation Research Chair in Industrial Engineering.

Many thanks to PowerSim who provided the software that we have used for the simulations. We are especially grateful to Mr Christopher Barker, PowerSim Office Director (UK). For our simulations we used an academic licence of PowerSim Studio 2003. We would also like to thank the anonymous referees for their helpful suggestions that have allowed us to improve the exposition of this research.