Using Systems Modelling to Understand the Dynamics of Supply Chains

Supply chain management remains a significant challenge for business today. Management decisions regarding pricing, stock levels, discounting policies, and merchandising all contribute to this challenge. External factors such as buyer behaviour and competitors also add complexity. Using the tools of systems modelling, the authors explore the dynamics of supply chain management and the impact of various policy decisions relating to discounting. Using a liquor retailer and a commodity product - beer, to illustrate the dynamics, the paper presents a practical application of systems modelling and the insights that can be gained from this approach. The results of the simulations suggest that discounting can lead to inventory fluctuations, that contribute to higher inventory costs, sales fluctuations, profit losses and undermined buyer confidence. These results ultimately lead the authors to question the policy of discounting and suggest that consistent pricing may be the best approach for supply chain management and maximum return on investment.