Applying system dynamics approach to the supply chain management problem

Abstract

Supply chain management is one of the fundamental issues in the manufacturing and operation management. The performance of supply chain management directly affects an organization's overall performance. For the past several years, supply chain management has been a growing concern in modern manufacturing and business processes because of the complexity of products and new technologies. Especially, information technology and widespread usage of web-based systems are changing strategies of how companies manage their operations, supply chain structures and strategic alliances. A supply chain network by nature is a large and complex, engineering and management system. To understand its structure and to design effective policies, the internal dynamic behavior of the supply chain must be studied. System dynamics is an effective tool for understanding the structure and internal dynamic behaviors of a large and complex system. This thesis focuses on a supply chain problem at LSMC. Traditionally, LSMC is an engineering, technological and manufacturing driven company and its products have been dominant in the market for many years. For the past few years, however, the greater competition in the industry and the increasing pressures from the upstream and downstream of LSMC's supply chain have created interesting dynamic behaviors. The purpose of this thesis is to apply system dynamics methodology to LSMC's supply chain problem and potentially apply the framework of this thesis to general supply chain problems in other industries. The thesis includes various simulations and analyses to understand the problem. Especially eigenvalue elasticities approach provides significant insights, which deepen the understanding of the structure of the model and its dynamic behavior, and lead to the conclusion that the oscillatory behavior in the production inventories and in the demand for LSMC's products is an endogenous cause.