System Dynamics Modeling and Simulation for Competition and Cooperation of Supply Chain on Dual-Replenishment Policy

Abstract—The need for holistic modeling efforts that satisfy the increasing supply chain enterprise at a strategic level has been clearly recognized by industry first and by academia recently. In order to increase the profitability of the entire chain, strategic decision-makers need comprehensive models to guide them to make efficient decision. The determination of optimal network configuration, inventory management policies, supply contracts, distribution strategies, supply chain integration and information technology are prime examples of strategic decision that affect the long-term profitability of the entire supply chain. With the main aim of supply chain management being to maximize the profits of supply chains, we depict a benchmark model which describes two supply chain competition behaviors under the fluctuation demand situations. On that basis, we design the cooperation contract between the chains for retailers’ inventory replenishment, and moreover, extend this cooperation contract to dual replenishment policy in order to heighten the profits of supply chain and its members in development. Found by the system dynamics simulation, this chain cooperation contract makes profit increasing to some degree, but inventory fluctuation of the supply chain members will be aggravated and the inventory cost will be increased. Consequently, we analyze the key issue of strategic supply chain management in depth, that of regulation parameter. Finally, we demonstrate the applicability of contract model on dualreplenishment policy through the application of computer simulation.