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Simulation of Supply Chains with VMI Based on System Dynamics

Author: ChenGuangWei
Tutor: Wu
School: Chongqing Jiaotong University
Course: Logistics Engineering
Keywords: Supply chain System Dynamics VMI Bullship Effect Supply chaincontract
CLC: F252
Type: Master's thesis
Year: 2013
Downloads: 2
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Abstract

The inventory is the guarantee of steadying enterprise production and improvingservice quality. Inventory management concept enables a connotation, balancing the riskof inventory cost and shortage. With the development of information technology, the modeof competition among enterprises has also undergone changes. The competition of new erais no longer a competition between individual enterprises, but the competition of supplychain. Inventory management is not only a single enterprise inventory control but also anoverall perspective of the supply chain system for inventory management. It is emphasizedthat logistics, information flow and capital flow are integrated as an effective system. Theinvolved flows range from procurement, production to distribution, and throughout thesupply chain. Consequentially, the overall supply chain achieve the complicated objective,which is meeting the needs of the end customer premise and keeping a lower inventorylevels and increasing the profits of enterprises and maximizing the holistic profit.Vendor managed inventory (VMI) is a new cooperative collaborative supply chaininventory management model. Its essence is a few upstream companies, such asmanufactures and wholesalers, apply a unified way to manage and control the inventory ofmany downstream companies, such as distributors and retailers. Then the inventorymanagement has been continuously improved. VMI inventory model reflects an integratedsupply chain management theory. From the view of the system, VMI effectively maintaina lower inventory levels and ease the problem of the bullwhip effect and information silosand improve the overall performance of the supply chain.The main subject of this paper is the research on the two-stage supply chain, whichconsist of supplier, retailer and customer and exist commonly in the manufacturing. Fromthe view of the system dynamic, VMI inventory management mode was analyzed with theideas and methods of the subject system dynamics modeling. Then we constructed asimulation of the VMI inventory management mode. Combining the process works oftime VMI replenishment model, four different end-customer demands was simulatedbased on the constructed simulation mode. Then we compared the VMI inventory modelwith the traditional inventory model, and focus on the bullwhip effect in two modes. It isshown that VMI inventory management the model can effectively alleviate the bullwhip effect. VMI inventory management mode provides a collaborative inventory managementstrategy for the enterprises in the supply chain. And it enables to reduce effectively theinventory levels, to ease the problem of the bullwhip effect and information silos, toimprove the profits of the enterprises on the supply chain and to achieve the integrationtarget of supply chain maximizing the profits.

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