110 Modeling of Responsive Supply Chain
they are not able to describe, analyze, and nd remedies for a major problem
in supply chains, which recently became known as “the bullwhip effect”
(Sarimveis et al., 2008).
Supply chain simulation requires the development of a model that suitably
represents the problem situation. Performance of the model is then studied to
make inferences about the real supply chain. The strength of the simulation
approach lies in its ability to deal with complexity of the real supply chains,
which may be too difcult to solve by employing analytical techniques.
Additionally, simulation approaches are applicable in situations involving
uncertainty. Campuzano and Mula (2011) described four approaches to sup-
ply chain simulations: spreadsheet-based, system dynamics, discrete-event
systems simulation, and business games. While all the other approaches are
quite popular, we conne our discussions to the system dynamics approach
of supply chain simulations.
One possible use of system dynamics in the supply chain management
area is in the modeling of the bullwhip effect—a curse that often hinders the
effective performance of a supply chain. The bullwhip effect may be inter-
preted as an outcome of the strategic interactions among rational supply
chain members who represent a series of companies, each ordering goods
to its immediate upstream member. In this setting, inbound orders from a
downstream member serve as a valuable informational input to upstream
production and inventory decisions. The retailer’s orders do not coincide
with the actual retail sales. Orders to the supplier tend to have larger vari-
ance than sales to the buyer, and the distortion propagates upstream in an
amplied form, which is referred to as the bullwhip effect.
The rest of this chapter is organized as follows. Section 4.2 presents the
characteristics of system dynamics. Section 4.3 presents supply chain model-
ing using system dynamics, while Section 4.4 presents the bullwhip effect
and its modeling using system dynamics. Section 4.5 presents a case study
on the retailer’s inventory. The conclusions are given thereafter.
4.2 Characteristics of System Dynamics
System dynamics is a methodology of system inquiry (Forrester, 1961;
Wolstenholme and Coyle, 1983). It helps in carrying out policy experimenta-
tion in a continuous time simulation environment with the help of a causal
model of a system. System dynamics is a computer-aided approach for ana-
lyzing and solving complex problems with a focus on policy analysis and
design (Angerhofer and Angelides, 2000). Forrester (1961) stated that system
dynamics is a theory of structure and behavior of systems that helps in ana-
lyzing and representing, graphically and mathematically, the interactions
governing the dynamic behavior of complex socioeconomic systems. System