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

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.