International Journal of Physical Distribution & Logistics Management

Industrial dynamics modelling of supply chains

Denis R. Towill
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Denis R. Towill, (1996),"Industrial dynamics modelling of supply chains", International Journal of Physical Distribution &
Logistics Management, Vol. 26 Iss 2 pp. 23 - 42
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D.R. Towill, M.M. Naim, J. Wikner, (1992),"Industrial Dynamics Simulation Models in the Design of Supply
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Denis R. Towill, (1996),"Time compression and supply chain management - a guided tour", Supply Chain Management: An
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 ID modelling of
Industrial dynamics modelling supply chains
of supply chains
Denis R. Towill
Logistics Systems Dynamics Group, University of Wales, Cardiff, UK 23

Introduction Received June 1995

Revised October 1995
The discipline of industrial dynamics (ID), alternatively known as system
dynamics and management system dynamics, has already been around for
some 40 years. Broadly speaking it is the application of feedback thinking and
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control engineering concepts to the study of economic, business and

organizational systems. The subject was pioneered by Jay Forrester at MIT[1],
who included a model of a supply chain as one of his early examples of the
methodology. Many of the engineering analogues subsequently proven useful in
supply chain management are also of long standing, particularly the
contributions of Tustin[2], Simon[3], and Burns and Sivazlian[4]. These will be
recognized readily as originating from the “servomechanism” route to feedback
thought as identified by Richardson[5].
As a consequence of using industrial dynamics in supply chain redesign we
are able to generate added insight into system dynamic behaviour and
particularly into underlying causal relationships. This new knowledge is
readily exploited in the improved design, robustness and operating
effectiveness of such systems[6]. The consequence is enhanced business
performance when judged against world class competition, typical criteria used
being speed to market of new products and the rate at which we can turn
around our stocks yet simultaneously satisfy customer demand.
Industrial dynamics is concerned with problem solving in living systems
which bring together machines, people and organizations. It therefore links
together hard control theory typified by Tustin[2] with soft system theory. The
latter originated in biology[7] and philosophy[8], and at present is best
summarized via the work of Checkland[9]. So the budding industrial
dynamicist needs to be aware of the relevant tools as viewed from both ends of
the systems spectrum. These include basic control theory but equally require
the ability to understand and model situations where there is no single unique
viewpoint but merely some consensus among the various “players” as to what
appears to happen in practice.

This paper is based in part on the Keynote Address by the author to the International Conference
on the Application of Multivariable Systems Conference, Bradford, UK, March 1994. The re-
engineering of supply chains is always a team effort, and the author is particularly pleased to International Journal of Physical
acknowledge the contributions of Dr Mohamed Naim, Danny Derry, and Joakim Wikner. Distribution & Logistics
Management, Vol. 26 No. 2, 1996,
Financial support for the project was provided by the EPSRC ACME Directorate under the grant pp. 23-42. © MCB University Press,
“Logistical Dynamics of Supply Chain Management”. 0960-0035
 IJPDLM In this paper we are concerned with building industrial dynamics models
26,2 within the context of living and planned supply chains as utilized successfully
within the Cardiff Industrial Systems Dynamics Group Re-engineering Method-
ology[10]. The concept may very briefly be summarized in input-output
diagram form as in Figure 1. We regard it as essential that the four inputs of
industrial engineering, control engineering, simulation, and business re-
24 engineering are integrated comprehensively within the modelling methodology
if it is to be used effectively. The first skill is essential if the true (as distinct from
opinionated) behaviour of the supply chain is to be established, and business re-
engineering imprints possible solutions within the commercial environment.
Simulation is needed to generate and test a range of alternative scenarios, from
which the one considered “best” will be implemented. A knowledge of control
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engineering provides lubrication for the foregoing analysis, modelling and

simulation. Above all it is an excellent infrastructure against which results can
be projected to all interested parties as can be judged from the number of words
from this fundamental discipline which are now part of our commonly used
vocabulary[11].

Integrating
mechanism

Industrial
engineering

Control
engineering
Effective industrial
dynamics models of
System supply chains
simulation

Figure 1.
Input-output diagram
Business
showing core skills re-engineering
required in the
industrial dynamics
re-engineering of
supply chains.
 How industrial dynamics models are used in supply chain ID modelling of
re-engineering supply chains
It is important that the industrial dynamicist should not confuse the relevance of
utilizing those hard system tools which greatly assist the modelling process with
any assumption on his part that people within the system behave in machine-like
ways. This is a distinction which some critics of ID believe we tend to overlook,
and which is largely rebuffed if we concentrate on generating simulation models 25
which allow for significant variability for both human and machine performance.
The way in which the model subsequently is used to improve systems effective-
ness is shown in Figure 2[10], which shows that the goal is enhanced business
performance via increased operations insight allied to better use of resources.
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Target Dual Means

improvement routes whereby

Process
knowledge

Increased
operations Modelling
insight techniques
Required
business
performance
improvement
Better use of Simulation
resources tools

Design
methodology

Figure 2.
“Top-down” approach to
the re-engineering of
Source: [7] supply chains
 IJPDLM We must always keep to the forefront the fact that at best an industrial
26,2 dynamics model is a simplified description of the real world[12]. It is derived in
the reasonable expectancy that in a complex situation we shall be able to make
predictions which are 80 per cent correct and to minimize the chance of making
predictions which are 100 per cent wrong! Compared with the modelling and
design of hardware systems, ID models require a markedly different
26 distribution in effort during the phases of problem identification, synthesis of
possible solutions, and implementation of the preferred solution. This
distribution is shown graphically in Figure 3, which is not to be interpreted that
finding a solution to the problem is straightforward; it is just that problem
identification and solution implementation are often horrendously difficult!
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For a "hard" system

0 Effort (%) 100

Identify Synthesize Implement

real possible desired
problem solution(s) solution

Figure 3.
Comparison of the
relative distribution of
effort required for re-
engineering supply
chains and “hard” 0 Effort (%) 100
systems
For a supply chain

Industrial dynamics modelling has potential uses in the following three

distinctive phases of supply chain re-engineering:
(1) Planning (i.e. what should we do?).
(2) Implementation (i.e. how do we then do it?).
(3) Control (i.e. real-time action via decision support systems).
 Our industrial experience suggests that the planning (and by implication ID modelling of
design) and implementation roles are the most powerful of the foregoing. Real- supply chains
time control applications we expect to be a bonus, since the latter should
already be present in existing physical situations. For example, in a study on
the redesign options for the classic Forrester supply chain, the control
algorithms allow for relatively little “fine tuning” compared to the
improvements possible from re-engineering the system by feeding forward 27
high quality information[13].

Demand amplification in supply chain

Jay Forrester had considerable experience with computer and fire-control
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systems prior to his “inventing” industrial dynamics. It is therefore not

surprising that he should regard the understanding of feedback as pivotal in the
(then) new discipline as the following quotation amply demonstrates[1]:
Systems of information feedback control are fundamental to all life and human endeavour,
from the slow pace of biological evolution to the launching of the latest satellite. A feedback
control system exists whenever the environment causes a decision which in turn affects the
original environment…In business, orders and inventory levels lead to manufacturing
decisions which fill orders and correct inventories. A profitable industry attracts competitors
until, using economist’s terms, the profit margin is reduced to equilibrium with other economic
forces. The competitive need for a new product leads to research and development
expenditure that produces technological change…Feedback theory explains how decisions,
delays and predictions can produce either good control or dramatically unstable operation.

In this extract Forrester is summarizing many of the phenomena associated

with real-life supply chains. For example, what often appears as a small random
ripple variation in sales at the marketplace is amplified dramatically at each
level in the chain so that upstream companies are experiencing the classical
“boom-bust” scenario with huge swings in manufacturing capacity required
plus typically anti-phase variations in stock levels. As a rule of thumb, based on
a number of supply chain studies, the demand amplification experienced is
about 2:1 across each business interface. Hence, in a typical traditional chain
involving retailer – distributor – original equipment manufacturer (OEM) –
sub-assembler – and raw materials supplier, the latter commonly is bombarded
with swings 16:1 bigger than the marketplace. In consultancy practice this
highly undesirable phenomenon frequently is explained by reference to the
“Forrester flywheel effect” shown as an influence diagram in Figure 4[14], in
which every “player” is overordering against uncertainties in both the
marketplace and in the supply chain.
As we shall see later, such a situation may be improved greatly by system
redesign using control engineering principles[6]. Such collaborative
arrangements as partnership sourcing[15] also have an important part to play in
achieving the enhanced business performance predicted from the simulation
model. Nevertheless the points made in the Forrester quotation are still very
valid. Upstream behaviour is triggered by downstream decision making but in
 IJPDLM Capacity Apparent
26,2 required Production flywheel
effect

Real
Shortages
Time

28

Demand Over Localized

distortion ordering protection
effect
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Safety Unreliable
stock increase delivery
Figure 4.
The “Forrester flywheel
effect” which causes
supply chain demand
amplification Amplified "Forrester" effect
Source: [14]

such a way that the companies involved respond blindly to the real world. False
seasonal demands are induced by random market sales operating on the system
dynamics, which is extremely confusing for all upstream resource planners and
decision makers. Furthermore, the time for the wave form to move upstream is
beyond the comprehension of most managers. This accounts in part for the great
worldwide campaign to reduce all industrial and commercial lead-times[16,17].

Model ownership
An industrial dynamics model should exist for a real problem-solving purpose
[12]. Modelling is not undertaken as an academic exercise, although it may
additionally offer up some conclusions of generic value for future improvement
programmes. Instead it must be focused on a real or perceived problem which is
“owned” by a senior executive in the concerned company. This “product
champion” has to be empowered to resource the investigation, have the drive to
ensure it is properly carried out, and can then act as “product champion” for
successful adaptation of the preferred solution.
The problem may appear specific in origin. For example, a production
director may feel that orders placed on his shopfloor are unnecessarily volatile
relative to perceived market demand. So he may opt to commission the building
of an industrial dynamics model to establish if this is indeed the case; to track
 down likely causes, and to recommend that alternative courses of action are ID modelling of
taken. The system shown in Figure 5 arose from just such a request, and would supply chains
lead inter alia to this kind of schematic representation of an internal supply
chain and the associated interface flows[18].

Internal supply chain 29

Commitments

Commitments
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Master Sales Orders

scheduling and
function marketing

MPS MPS
Expedite

Material Production Sales order Orders

planning planning system
system meeting

Material Production Despatch

requirements progress and notes
problems
Avail-
ability
Purchasing Production Weekly
department control production
requirements
Leadtime/ Purchase
availability order Kit Shortages
Shopfloor
Stock status representation
Shortage levels Production
report outputs Figure 5.
Finished
Block schematic
Supplier Material Shop goods Customer description of an
stores floor stores internal supply chain
and associated interface
flows
Source: [18]

Here strong ownership of the problem and the resources available to

implement change is seen as crucial; it must be the “product champion” who
visibly owns the model. Indeed in the ideal situation (frequently met in
practice) it should be the problem owner who demonstrates to his peers the
various re-design strategies. Without his personal support subsequent
implementation is doomed to failure, especially if the solution involved
moving across functional boundaries since managing the attitudinal change
may require much drive and personality. Again these are quite different from
the managerial skills normally required to implement hardware engineering
solutions.
 IJPDLM Building models of real supply chains
26,2 The development of industrial dynamics models requires the modeller himself
to operate in feedback mode. This starts with a perception of the “real-world”
situation which in turn requires the drawing of system boundaries sufficient to
include all the elements which contribute significantly to the problem under
study. Note that industrial dynamics does not regard the resulting system as
30 “closed” in the systems theory sense; indeed it is a powerful modelling tool to
study the flow of material, information and money across these boundaries in a
manner analogous to the use of chemical balance equations. Many people have
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Systems
knowledge-
based sources

Feedforward/
feedback
principles
Other system
concepts

Written
documents

People-based Purpose
sources

Verbal/mental Structure
description

Observed System
operations model

Observation- Parameters
based sources
Real-
world
Figure 6. system Observed Model
behaviour behaviour
Summary of the major
information sources for
industrial dynamics
modelling of supply
chains Establish
discrepancies
 contributed to the techniques whereby ID models of real life systems may be ID modelling of
established, including Forrester[1], Jenkins[19], Parnaby[20], and Richardson supply chains
and Pugh[21]. The major techniques may be grouped together as shown in
Figure 6, in which the goal is seen to be to establish the system model and model
behaviour via people-based sources, observation-based sources, and systems-
knowledge-based sources.
At this juncture we must emphasize that the ID modeller has to be able to 31
make value judgements on which information routes are likely to prove most
effective. It is surprising how few companies regularly display “rich picture”
graphical information on performance such as Cusum plots to show trends,
medium-term dynamic behaviour, and to provide trigger points for subsequent
management action. Every assignment will offer different modelling
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opportunities but also different challenges and indeed pitfalls. But it is

disappointing to find that in the information technology age, from the ID
modelling viewpoint, such a small percentage of the available data is actually
usable. Following [12] we may briefly summarize the current situation facing
the ID modeller as follows:
• There are an awful lot of data about!
• A lot of this data is frankly awful in quality and reliability terms.
• Data are rarely in a form suitable for modelling purposes.
• Many industrial data are often difficult, if not impossible to interpret.
• Any need for “second guessing” the meaning of data usually turns
them into a liability.
• Data should never be confused with information.
• Such data as are really useful have all too often been destroyed before
being fully exploited by the modeller.
• There is often as much useful information in the “noise” as there is in
the apparent message!

Information sourcing from people

Information sourcing for ID models can be expanded in an Ishakawa diagram
as shown in Figure 7. In comparison with Figure 6, the people-based methods
are seen to include direct contact and written documentation, while obser-
vation-based methods include investigation and numerical analysis. People
contact methods are potentially the most rewarding of all sources but equally
likely to provoke frustration. The reason is that communication between human
beings follows the classical information channel model shown in Figure 8.
Hence, the ID modeller needs to be constantly aware of the sender and receiver
bias, i.e. distortion (including his own prejudices) and the inevitable distraction
of “noise” which are bound to enter any conversation. This is particularly prone
in supply chain scenarios: few “players” have a “rich picture” of their own
business, let alone a full understanding of the complete chain.
 IJPDLM
26,2 People contact Written
methods documentation

Interviews Accounts
Brainstorming Procedures
32
Cross-functional Minutes
groups
Source material
for building
industrial
dynamics
Model matching Process models
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flows
Statistical
analysis Activity
sampling
Figure 7. Time series
analysis Questionnaires
Expansion of the
people-based and
observation-based Numerical Investigative
information sources methods methods

It is not unreasonable to assume that at the start of an interview both sender

and receiver bias may be as high as 50 per cent. This means that initially only
about 25 per cent of the information is of reasonably high fidelity! So effective
modelling must proceed in the recursive manner shown in Figure 9, where in
addition to iteration we must view each process being modelled from internal,
upstream and downstream perspectives[10]. It is this recursive exercise
undertaken via the appropriate combination of people-based, documentation-
based, numerical-methods-based, and investigation methods which properly
mimics the “balance equation” approach of the chemical engineer[19].
It is essential that the ID modeller avoids “paralysis by excessive analysis”
and has a clear understanding as soon as we arrive in a position to build the
first useful model[22]. After all, until that stage the modeller cannot expect other
than zero credibility from the problem owner! So the art of effective ID

Spokesman Transmission Reader

bias noise bias

Figure 8.
Explaining people- + + +
based modelling Source + Encoder Transmitter + Receiver Decoder + Sink
difficulties via the
classical information
theory model Communication
channel
 S1 R1
ID modelling of
S2 Business process being R2 supply chains
Sources modelled (say production Sinks
scheduler)
Sm Rn

(a) General input-output diagram 33

Process perception by
sources Views by process

Process
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Input being Output

sources modelled sinks

Views by process Process perception by

sinks

(b) Improving "perception" of process

Process
information

Level
deemed
"sufficient"
Figure 9.
Using a recursive
approach to achieve a
balanced description of
0 1 2 3 4 5 6 I/O Iteration no. business processes in a
supply chain
(c) Process information build-up as iterations continue

modelling is very dependent on knowing the value of the information so far

obtained in the context of reasonably describing expected systems behaviour.

Observation-based information sourcing

At Cardiff we have found that in the supply chain environment there is no
substitute for using investigative methods. This is partly to absorb company
culture and partly to gain an independent perspective of events as they unfold,
thus helping to minimize bias received during people-based information
sourcing. Activity sampling and process flow analysis have their origins well
established in industrial engineering[23]. The first technique requires the
 IJPDLM modeller “to stand on the street corner” and take an intelligent interest in all
26,2 that goes on around him, while the second involves “stapling oneself to an
order”, or product, to determine absolutely every stage of the business process
[24]. Indeed it is often found that until the model is established no single person
fully appreciates all of the non-value added activities which occur within supply
chains. Figure 10 shows a typical process flow chart determined by Hoekstra
34
customer
echelon
stream
Down-
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Physical flow
24-35 days

13-19 days
Delivery

Info. flow
FG
assembly
Final

2-3

1
MA

0-2

1
assembly
Sub-

Manufacturing
Factory

7-8

4-6
FC

0-2

1
Components
production

Modularized assembly store

Finished components store
7-8

4-6

Purchased goods store

Finished goods store

Storage
PG

8-12

2-4
purchased
Receiving

Procurement
goods

PG =
FC =
MA =
FG =
Key

Figure 10.
Source: [25]

Typical process flow

Upstream
supplier
echelon

chart describing part of

an electronic products
supply chain
 and Romme[25] via an activity-based investigation. Note the importance of ID modelling of
observing the delays incurred in both material and information flow channels. supply chains
Questionnaire design originates, of course, from the social sciences and is not
a trivial task. Questions should be unambiguous, unthreatening and self-
checking insofar as this is possible. Getting questionnaires answered by
apparently busy people is also far from guaranteed, so the questions must
appear relevant and unless the modeller is very persistent in obtaining 35
interviews the take-up rate is likely to be only a few per cent. Wherever possible
a numerical “score” should be given to questionnaire answers. A good example
is that of Harland[26], who used a Likert scale to establish the size of gap in
“players’” perception of customer requirements according to their position
within the supply chain. The Harland mismatch model shows that customer
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dissatisfaction generally increases upstream in the supply chain, i.e. there

appears to be a relationship between the level of demand amplification and level
of dissatisfaction between the relevant “players”.

Systems-knowledge-based information sources

When building ID models the analyst has available a large database of
conceptual models which have been encountered in industrial practice. Many of
these have stood the test of time and can be used as reference systems to test the
feasibility of ID models during the modelling process. For example the basic
format of linear stock control models was developed by Tustin [2], through
Simon[3], Lyneis[27], and Coyle[28], and subsequently benchmarked by Ferris
and Towill[29]. Indeed it is possible to group various models into generic
families which guide the analyst into a reasoned selection of the “best”
description of the actual situation encountered. A simple example of an
influence diagram suitable for use as a building block in supply chain
modelling is shown in Figure 11.
From the influence diagram we see that, starting from the basic feedback
configuration of inventory-based production control system (IBPCS), the more
complicated inventory and order-based production control system (IOBPCS)
model is obtained using feedforward of sales to influence directly factory orders.
Finally variable inventory and order-based production control system
(VIOBPCS) utilizes an additional feedforward of sales to influence directly target
inventory levels. Such generic families have two big advantages. They can be
used to verify subsystem models of real situations, but they can also be used as
elemental building blocks within complex supply chains[6]. In the latter case we
are then in a position to “rank” the effectiveness of various improvement
programmes via simulation of various future re-engineered operating scenarios.
We have found that many managers feel comfortable discussing such
influence diagrams which link material flow and information flow thus exposing
system structure for scrutiny and debate. Indeed, during “brainstorming”
sessions it is often their tool of choice in moving towards a consensus description
of a supply-chain situation. However, for serious analysis and simulation the
added discipline of the block diagram representation is to be preferred. This is
 IJPDLM Usage rate
(sales)
26,2 Usage smoothing
time constant (Tb)

Smoothed
usage rate
36 Cover time Usage smoothing
time constant (Tc) time constant (Ta)

Cover Smoothed
Safety stock usage rate
stock
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+ –
+ + +
Stock Stock Correction Factory order Completion Free
target error rate + rate rate stock
+ –
Factory dynamics
Stock correction
time constant (Ti)

Key
Figure 11.
Influence diagram for Pathways for inventory production control system
(IBPCS)
an inventory and order-
based production Additional pathways for inventory and order-based
control sysem used as a production control system (IOBPCS)
supply chain building
block Further additional pathways for variable inventory and
order-based production control system (VIOBPCS)

outside the scope of the present paper: a working description of the method is to
be found in Towill[30].

Industrial dynamics verification and validation

In checking industrial dynamics models there are a number of standard tests
which may be applied; Wolstenholme[31] is a good reference source. The
checklist includes dimensional analysis to ensure consistency of units; asking if
all factors considered important included within the model; ensuring the
boundary assumptions are consistent with the real-world situation; etc. These
checks all have direct equivalence with the modelling of hardware systems.
However, when verifying the structure of the model we unfortunately cannot
fall back on the laws of physics. Instead we have to double check that the model
 is consistent with the consensus description available from the combined ID modelling of
sources of written, people-based, numerical-based and investigative methods. supply chains
But the final step in model verification must be public exposition of the model
in the presence of all the various “players” who have contributed information and/
or opinions. Sample model responses obtained by simulation for various typical
operating conditions are then displayed and agreement must be reached by the
group that the behaviour patterns are “realistic”. In fact what usually happens is 37
that a number of the “players” will immediately recognize and enthusiastically
identify their problems with particular phenomena observable in the simulation
results and become very effective “product champions” for the model.
If such agreement is reached, then the industrial dynamics model can be used
as the basis for improved systems design without much additional numerical evi-
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dence being available in the way of statistical correlation with historical opera-
ting records (model validation), scanty as these indeed may turn out to be. Indeed
the system may not yet exist: maybe it is in the throes of modification; or indeed
it may be such a long time scale system that we cannot wait for enough data to be
collated to perform a validation of the model. Hence, for strategic thinking on
dynamic behaviour we must frequently be content with the best verified model
that can be agreed. We may still occasionally get the wrong strategy emerging,
but the odds should be very much in favour of the verified model achieving
improved performance via skilled business process reengineering.

Putting industrial dynamics models to good use

The complete Cardiff Industrial Systems Dynamics Group supply chain
modelling and re-engineering methodology is summarized in the flow diagram
of Figure 12[18]. Among the many business applications of industrial dynamics
models within supply chain scenarios which we can vouch for are:
• Explaining the dynamic behaviour of an existing system (ex. modelling
dynamic interfaces between automotive manufacturer and distributor)
prior to substantial re-engineering.
• Confirming validity of proposed system modification (ex. evaluating
benefits of adding pipeline controls).
• Predicting new types of system behaviour (ex. sudden switching of
achieved customer service levels explained via simulation).
• Benchmarking competitive improvement strategies (ex. comparison of
alternative supply chain options for damping down “boom-bust”
dynamic behaviour experienced by upstream manufacturers).
• Checking out of novel adaptive control systems (ex. achieving customer
service levels across a multi-product health care company taking account
of individual manufacturing lead times).
• Benchmarking improvement programmes carried out within an
electronic product supply chain.
 IJPDLM
26,2
Real-world
supply chain

38
Business
objectives
Conceptual problem

Qualitative phase
Systems
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input-output
analysis

Conceptual
model

Block diagram
formation

Control theory Computer Statistical

simulation
Technical problem

techniques techniques
techniques Quantitative phase

Verification/
validation

Dynamic
analysis

Tune existing Structural What if

parameters redesign business
scenarios
Figure 12.
Summary of the Cardiff
supply chain modelling
and re-engineering Source: [18]
methodology
 Baseline ID modelling of
JIT
supply chains
Factory order rate

1,000 1,100
(units/week)

39
40
0

Time (weeks)
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(a) JIT improvement over baseline

JIT
Logistics
Factory order rate

integration
1,000 1,100
(units/week)

40
0

Time (weeks)

(b) Logistics integration improvement over JIT

Logistics
integration Vendor
Factory order rate

integration
1,000 1,100
(units/week)

40
0

Time (weeks)

(c) Vendor integration improvement over logistics integration

Vendor
integration
Factory order rate

Time-based management
1,000 1,100
(units/week)

Figure 13.
Prediction of the
40 improvement in a
0 re-engineered supply
chain response to a step
Time (weeks) change in marketplace
demand
(d) Time-based management over vendor integration
 IJPDLM Improvement Prime
26,2 programme characteristics

Just in time Reduction of manufacturing lead times

by greater than 50 per cent
Logistics Link all manufacturing resource planning
40 integration systems via electronic data interchange
(EDI) reducing information lead times
by a least 75 per cent
Vendor Suppliers linked directly via EDI to respond
Table I. integration respond to “pull” signals
Definition of re- Time-based Further improved product development,
management ordering and distribution systems
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engineered supply
chain improvement
programmes Source: [6]

As an example we illustrate the benchmarking of improvement programmes by

showing the orders placed on an upstream manufacturer in an electronic
products supply chain using a verified model for each echelon within the chain
[6]. Each real-life improvement programme is defined in Table I. For a step
change in demand at the marketplace, simulation predicts the amplification
experienced at the factory as shown in Figure 13. It clearly supports Forrester’s
fears on the order of magnitude effect on demand as the wave moves upstream.

Peak demand Dir

at factory ect
ion
6 of i
mp
rov
ed
Baseline

per
for
5 ma
nce
Plus JIT

Plus logistics

4
integration

Plus vendor
integration

3
Plus time-based
"Ideal" case

management

2
Figure 14.
Bar chart summary of
improved performance 1
predicted for the re-
engineered supply chain
 Clearly there is a tremendous improvement in anticipated supply chain ID modelling of
damping via the re-engineering programmes as confirmed by the bar charts of supply chains
Figure 14.
Note that the improvement programmes listed overlap in part and
implementation throughout the chain covers some 12 calendar years in total.
Indeed substantial progress has already been made in achieving benefits from
these improvements, although this particular ID model was developed part-way 41
through this period, it still gives a clear ranking of the benefits to be expected
from individual programmes. The real role for this type of modelling should be
advising executives on the prioritization of programmes to gain most benefit to
all players in the supply chain, and to have this information available
beforehand so as to give best resourcing of “product champions” time. But, as
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demonstrated recently in an industrial case study, this must be embedded

within a genuine effort to replace adversarial tendencies with an effective win-
win philosophy[32].

Conclusion
It has taken a long time for industrial dynamics modelling to come of age in the
supply chain arena, despite the early recognition by Jay Forrester of its
applicability to this important field. The paper has shown the various ways in
which ID models may be built and exploited in supply chain re-engineering.
It is considered that best results are most likely to be obtained by adopting a
holistic approach in which the basic disciplines of industrial engineering and
business process re-engineering are integrated into a comprehensive
methodology which starts with modelling a real-world situation and outputs an
updated supply chain with enhanced competitive performance.

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