Economic value added of supply chain demand planning: A system dynamics simulation

The development of a successful demand plan is typically a joint effort between different functional units such as Logistics, Marketing, Sales and executive management at one hand and between different business units on the other. Starting a project to structurally improve the demand planning often requires convincing all parties involved in such an effort. The key is to quantify the bottom-line impact of an increased demand planning reliability in the supply chain. This paper proposes a system dynamics simulation modeling framework that allows different managers to examine how improvements in their demand reliability will impact the overall corporate bottom-line. For example, supply chain managers can investigate how proposed changes in the supply chain demand forecasting structure, different suppliers, different logistics routes, or alternative inventory methods, may increase the overall profitability. The simulation model has been tested, validated with a real-life case of LG. Philips Displays Europe. (C) 2006 Elsevier Ltd. All rights reserved.