Impact of Capacity Constraints on the Dynamic Response of Two Level Supply Chain

Abstract

This paper investigates the impact of capacity constraints on the stability boundaries of two tier supply chain. System dynamic simulation using iThink Software has been applied to explore the impact of different levels of capacity constraints on the Order Rate and Actual Inventory of Automatic Pipe Line Inventory and Order Based Production Control System (APIOBPCS). When manufacturer has capacity level of 1.33 over the mean demand, the factory (farthest echelon) should be confident in dealing with the 20 % increase in demand and this situation has been named as the “Leading Capacity Strategy”, where the manufacturer can use excess capacity to absorb sudden increases in demand. This research gives supply chain operations managers and designers a practical way to develop understanding of capacity constraints at different echelons and to take better decisions about their capacity level.