Dynamic Supply Chains with Endogenous Dispositions

66 Pages Posted: 20 Jul 2022 Last revised: 15 Aug 2022

See all articles by James Paine

James Paine

MIT Sloan School of Management

Date Written: August 12, 2022

Abstract

The movement of goods through a supply chain depends not only on the physical flow of goods but also on the economic decisions of each entity along the chain, including price discovery and inventory disposition decisions. This paper presents a methodological contribution to the System Dynamics community by developing a novel framework for supply chain models featuring economic decisions by combining three classic modeling methods: co-flow differential equation structures, spot price discovery, and multinomial logistic choice modeling. The relative economic values of possible dispositions of goods, including outright disposal, are considered. For work-in-progress, development is considered in terms of the economic value that an additional unit of time will bring to the finished good, and the interplay of these considerations drive goods through, or out of, supply chains. Incorporating these mechanisms can produce materially different behavior modes and can be applied to multiple levels of aggregation within a production process.

Keywords: Dynamic Decision Making, Supply Chain & Inventory Management, Economics, Methodology, Logistic Choice Modeling, Behavioral Operations Management

JEL Classification: M11, C63, C32, C44

Suggested Citation

Paine, James, Dynamic Supply Chains with Endogenous Dispositions (August 12, 2022). Available at SSRN: https://ssrn.com/abstract=4148766 or http://dx.doi.org/10.2139/ssrn.4148766

James Paine (Contact Author)

MIT Sloan School of Management ( email )

HOME PAGE: http://JamesPaine.info

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