A System Dynamics Model for Capacity Planning of Component Supply in Complex Product Manufacturing

Complex product manufacturing faces a great challenge in coordinating the supply of components. Manufacturers of complex products are highly sensitive to supply chain delays as insufficient delivery of any components would suspend the entire assembly line. This article focuses on the capacity planning decisions of the supplier and manufacturer for coordinating the component supply of complex product manufacturing. A system dynamics model is developed to capture the dynamic interaction of supplier's production capacity planning and manufacturer's component inventory expansion capacity planning. Based on simulation results and analysis, the following guidelines are proposed for making capacity planning policies: 1) Information sharing should be advanced to help the manufacturer and supplier make capacity planning policies; 2) With only limited information about supplier's production capacity, it may not be favorable for the manufacturer to coordinate component supply by acquiring replenishment from backup suppliers; and 3) With only limited information about manufacturer's component inventory expansion capacity, it is better for the supplier to keep a higher production capacity.