Using systems dynamics to evaluate the tradeoff among supply chain aggregate production planning policies

Abstract

Purpose – The purpose of this paper is to explore different aggregate production planning (APP) strategies (inventory levelling, validation of the workforce and flexible production alternatives: overtime and/or outsourcing) by using a system dynamics model in a two-level, multi-product, multi-period manpower intensive supply chain (SC). Therefore, the appropriateness of using systems dynamics as a research method, by focusing on managerial applications, to analyse APP policies is proven. From the combination of systems dynamics and APP, recommendations and action strategies are considered for each scenario to understand how the system performs and to improve decision making on APP in the SC context. Design/methodology/approach – The research design analyses a typical factory setting with representative parameter settings for five different conventional APP policies – inventory levelling, workforce variation, overtime, outsourcing and a combination of overtime and outsourcing – through deterministic systems dynamics-based simulation. In order to validate the simulation model, the results from published APP models were replicated. Then, optimisation is conducted for this deterministic setting to determine the performance of all these typical policies with optimal parameter settings. Next, a Monte Carlo stochastic simulation is used to assess the robustness of such performances in a variety of demand settings. Different aggregate plans are tested and the effect that events like demand variability and production times have on the SC performance results is analysed. Findings – The results support the assertion that the greater the demand variability, the higher the flexibility costs (overtime, outsourcing, inventory levelling, and contracts and firings). As greater inter-month oscillations appear, which must be covered with additional alternatives, the optimum number of employees must be determined by analysing the interchanges and marginal costs between capacity oversizing costs (wages, idle time, storage) and the costs to undersize it (penalties for lowering safety stocks, delayed demand, greater use of overtime and outsourcing). Accordingly, controlling the times to avoid increased costs and penalties incurred by delayed demand becomes an essential important task, but one that also depends on the characteristics of this variability. Practical implications – This paper has developed a modelling approach for APP in a manpower intensive SC by applying system dynamics. It includes a simulation model, the analysis of several scenarios, the impact on performance caused by variability events in the parameters, and some recommendations and action strategies to be subsequently applied. The modelling methodology proposed can be employed to design-specific models for each SC. Originality/value – This paper proposes an APP system dynamics approach in a two-level, multi-product, multi-period manpower intensive SC for the first time. This model bridges the gap in the literature relating to simulation, specifically system dynamics and its application for APP. The paper also provides a qualitative description of the various pros and cons of each analysed policy and how they can be combined.