A system dynamics model of financial flow in supply chains: a case study

¹ Department of Mathematics, Bhangar Mahavidyalaya, 743502 Bhangar, South 24 Parganas, India
² Department of Industrial Engineering, Universidad De La Costa CUC, Barranquilla, Colombia
³ Department of Industrial Engineering, Universidad Del Norte, Barranquilla, Colombia

^* Corresponding author: shib_sankar@yahoo.com

Received: 14 November 2016
Accepted: 31 March 2017

Abstract

The article discusses the operational and financial relationships among the channel members of a supply chain comprising of a manufacturing company and a distributor. This research simulates the financial system that enables a more accurate diagnosis of disaggregated metrics “Cash to Cash”, considering different interactions between material flow and the financial flow of the two links, manufacturer and distributor. This model considers the feedback loops between material flow models and financial models without which some interactions are lost during simulation. The proposed diagnostic method which incorporates an eclectic process re-engineering practices and state of the art of dynamic simulation with the implementation of advanced techniques of sensitivity and dynamic optimization models those are applied on the concept of stocks and flows. This methodology is used in order to analyze and improve business strategies by generating policies which help to improve cash flow of the company. To validate our model, a case study illustrating the improvement of different metrics of the supply chain is considered here. The results show that the companies have to invest in technology in order to generated strategic decision to enhance their financial metrics.