Dynamic Modeling of Inventory Systems Under Supplier Delay: A System Dynamics Approach

Abstract

This study presents a System Dynamics (SD) model for simulating a demand-responsive production and inventory system under uncertainty. The model incorporates 21 equations that capture key dynamics such as stochastic demand, inventory accumulation, production delays, and backlog behavior. Using causal loop and stock-flow diagrams, the structure highlights feedback loops that govern system stability and cost outcomes. The model was implemented in Vensim and simulated over a 100-day horizon with varying parameters for supplier delay and safety stock factor. Results show that supplier delay has a dominant nonlinear effect on inventory levels, backlog accumulation, and stockout costs, particularly under conditions of limited production flexibility. Conversely, increasing the safety stock factor improves service levels but significantly raises holding costs. Optimal performance occurs when safety stock is moderate (1.0-1.2) and supplier delay is under 4 days. The study emphasizes the usefulness of SD models as virtual laboratories for policy testing in production planning. By enabling decision-makers to visualize cause-effect relationships and explore "what-if" scenarios, the model supports resilient and cost-effective inventory strategies. This approach is particularly relevant in today's volatile industrial environments, where delayed responses and poor buffering can result in cascading failures.

Keywords: System Dynamics, Inventory Management, Production Planning, Supplier Delay, Cost Optimization