The impact of endogenous demand on push–pull production systems

Abstract

Though often analyzed separately, supply chain instability and customer demand interact through product availability. We investigate the feedback between supply chain performance and demand variability in a model grounded in a first-hand study of the hybrid push-pull production system used by a major semiconductor manufacturer. While customers' response to variable service levels represents an important concern in industry, with sizeable impacts on company profitability, previous models exploring supply chain instability do not account for it. This research incorporates two effects of customer responses to availability. The sales effect captures the negative feedback whereby product shortages cause customers to seek alternative sources of supply, reducing demand and easing the shortage. The production effect captures the delayed impact of changes in demand on the manufacturer's production decisions: lower demand leads to reduced production, prolonging shortages that depress demand, a destabilizing positive feedback. We show how the sales and production effects interact to destabilize the supply chain and lower average performance. Supply chain models that assume exogenous demand may therefore underestimate the amplification in the chain and the value of inventory buffers. In addition, incorporating the customer response leads to different inventory and utilization policies from those in use by the company. The model yields insights into the costs of lean inventory and responsive utilization policies in the context of hybrid production systems and endogenous demand.

Understanding the dynamic behaviour of three Echelon retail supply chain disruptions

“…The model is initialized in order to be in a steady state with constant consumer demand since the purpose of the study is finding out the impact on the overall stability of the supply chain network (Gonçalves, Hines, and Sterman 2005). In the steady state, the consumer demand is constant and therefore the flow of products from the production phase at FMCG down to the retailers are relatively steady.…”

Causality relationship between the photovoltaic market and its manufacturing in China, Germany, the US, and Japan

“…Increasing the market scale drives higher expectations of demand and better cash flow, and thus it can drive more innovation investment [10], and vice versa. Similarly, by driving higher expectations of market demand, the growth of the market scale can result in a larger scale of module production [11].…”

Assessing capacity scalability policies in RMS using system dynamics

“…It was shown that this capacity analysis, including the surge effect, in supply chains would improve their responsiveness. Goncalves et al (2005) highlighted the issue of capacity variation in their push-pull manufacturing SD model through the effect of capacity utilization on the production start rate. Anderson et al (2005) considered logical capacity scalability in supply chains for service and custom manufacturing.…”