A system dynamics model of financial flow in supply chains: a case study

Abstract

The article discusses the operational and financial relationships among the channel members of a supply chain comprising of a manufacturing company and a distributor. This research simulates the financial system that enables a more accurate diagnosis of disaggregated metrics “Cash to Cash”, considering different interactions between material flow and the financial flow of the two links, manufacturer and distributor. This model considers the feedback loops between material flow models and financial models without which some interactions are lost during simulation. The proposed diagnostic method which incorporates an eclectic process re-engineering practices and state of the art of dynamic simulation with the implementation of advanced techniques of sensitivity and dynamic optimization models those are applied on the concept of stocks and flows. This methodology is used in order to analyze and improve business strategies by generating policies which help to improve cash flow of the company. To validate our model, a case study illustrating the improvement of different metrics of the supply chain is considered here. The results show that the companies have to invest in technology in order to generated strategic decision to enhance their financial metrics.

Company Financial Flow Modelling by System Dynamics Methodology

“…Financial logistics, as part of the logistics approach to management, has been considered for a long time. In particular, in the classical theory of logistics, finance is part of the overall system of material flow management (Badakhshan et al, 2020;Sana et al, 2018). However, in some contemporary studies, financial logistics is considered as a specific system of financial flow management, which is not always associated with the movement of material resources, namely, within consolidated groups of enterprises (Mandra, 2018) and so on.…”

“…The system dynamics methodology is widely used for solving different problems in logistics and management purpose. In particular, the system dynamics methodology is used to simulation and forecasting financial flow in supply chain (Sana et al, 2018). This approach is to synchronizing material and financial flow, but it is does not sufficiently detail the dynamics of the financial flow.…”

Operationalizing Accounting Reporting in System Dynamics Models

“…Sometimes, inexact representations of accounting may be entirely appropriate for a model's purpose [34,35], but even when accounting is an important focus of a system dynamics modeling project [19,[36][37][38], authors often approach accounting by re-inventing the wheel rather than incorporating previously published models such as Repenning and Sterman [25]. In almost all cases where authors create their own accounting structures, they treat the instantaneous values of revenue, expenses, and cash flow as if they were identical to the reported values of those concepts [26].…”

Competition in multichannel expert services in duopoly

“…There are also studies showing that the service quality affects loyalty (Annamdevula and Bellamkonda, 2016) and customer satisfaction (Politis et al, 2014). Moreover, it has been demonstrated that companies need to invest in technology (Sana et al, 2018), where opening online channel is one way to invest. For online expert services, Wu and Lu (2017) suggested that expert service providers are encouraged to open online channel to get more profits.…”