Dynamic modelling of surge effect and capacity limitation in supply chains

Agile manufacturing has been defined as the capability of reacting to unpredictable market changes in a cost-effective way, simultaneously prospering from the uncertainty. In many industries, vigorously changing markets are demanding more differentiated products in lower volumes and within shorter delivery times. An uncertain environment challenges the response of supply chains. This paper demonstrates, by using a system dynamic simulation, how agility is built into supply chains. Three simulation models are analysed: first, the demand magnification effect in supply chain is studied. Secondly, the analysis is extended to capacity surge effects. Finally, the trade-off between capacity utilization and lead times is discussed. The analysis recommends smaller order sizes, echelon synchronization and capacity analysis as methods of improving the responsiveness of a supply chain. Evidence is provided from simulation runs and established literature. All three models are system dynamics based replications of well-known effects from the research area of production control.