An Inventory Model for Deteriorating Items in a Supply Chain with System Dynamics Analysis

Rau et al. (2004) developed an integrated inventory model of supply chain for deteriorating items among a supplier, a producer and a buyer. Through mathematical model development, the optimal order lot-size and delivery number n was solved under the minimal joint cost of supply chain. Rau et al. emphasized on traditional mathematical and statistical calculation to acquire the optimal order timing and best inventory policy, but not had further discussion on dynamics complex relation due to time evolution. In order to reflect the operation process truly, there is a forceful need to consider inventory model of deteriorating items in a systematically way. Therefore, in this paper, we apply system dynamics thinking to propose a new order system and conduct a systematical simulation. The results of validation and model testing of constructed model showed that system dynamics simulation methodology is appropriate. Finally, through the system dynamics simulation, the optimal minimal joint cost of supply chain was acquired.