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System dynamics analysis of supply chain financial management during capacity expansion

System dynamics analysis of supply chain financial management during capacity expansion PurposeThis study aims to describe in detail, a system dynamics-based study that was used to show how a large vertically integrated aquaculture company should approach its stepwise capacity expansion program, without undermining its financial performance or affecting the performance of the value chain.Design/methodology/approachThe company and its aquaculture value chain are used as case study. A system dynamics model is developed on the basis of generic end-to-end agribusiness and aquaculture supply chain models. The model includes the unique dynamics relating to an aquaculture supply chain. Also modelled is the working capital management rules of the company, with the effects of the capacity expansion program on its working capital, market share and its supply chain obligations. The model is used to determine the long-term impact of the company’s working capital management under different modes of financing and rate of expanding the capacity.FindingsFor a large vertically integrated company that wants to increase its capacity, there is a systematic approach to working capital management that can be used to avoid financial distress or value chain distortion.Research limitations/implicationsExtended the scope of system dynamics modelling within multiple disciplines, namely, agribusiness supply chain finance, supply chain capacity investment, financial management in large companies, supply chain working capital management and aquaculture value chain.Practical implicationsThe developed model can be used to manage supply chain working capital in large vertically integrated agribusinesses, and also to assess supply chain financial risk.Originality/valueTo enhance the model build, discrete event simulation was used to model aspects of the system. The eventual system dynamics-discrete event simulation model is a form of hybrid simulation modelling that was used to provide a deeper understanding of how supply chain financial decisions affect an entire value chain system. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Modelling in Management Emerald Publishing

System dynamics analysis of supply chain financial management during capacity expansion

Journal of Modelling in Management , Volume 15 (2): 23 – Nov 21, 2019

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1746-5664
DOI
10.1108/JM2-05-2019-0100
Publisher site
See Article on Publisher Site

Abstract

PurposeThis study aims to describe in detail, a system dynamics-based study that was used to show how a large vertically integrated aquaculture company should approach its stepwise capacity expansion program, without undermining its financial performance or affecting the performance of the value chain.Design/methodology/approachThe company and its aquaculture value chain are used as case study. A system dynamics model is developed on the basis of generic end-to-end agribusiness and aquaculture supply chain models. The model includes the unique dynamics relating to an aquaculture supply chain. Also modelled is the working capital management rules of the company, with the effects of the capacity expansion program on its working capital, market share and its supply chain obligations. The model is used to determine the long-term impact of the company’s working capital management under different modes of financing and rate of expanding the capacity.FindingsFor a large vertically integrated company that wants to increase its capacity, there is a systematic approach to working capital management that can be used to avoid financial distress or value chain distortion.Research limitations/implicationsExtended the scope of system dynamics modelling within multiple disciplines, namely, agribusiness supply chain finance, supply chain capacity investment, financial management in large companies, supply chain working capital management and aquaculture value chain.Practical implicationsThe developed model can be used to manage supply chain working capital in large vertically integrated agribusinesses, and also to assess supply chain financial risk.Originality/valueTo enhance the model build, discrete event simulation was used to model aspects of the system. The eventual system dynamics-discrete event simulation model is a form of hybrid simulation modelling that was used to provide a deeper understanding of how supply chain financial decisions affect an entire value chain system.

Journal

Journal of Modelling in ManagementEmerald Publishing

Published: Nov 21, 2019

References