Complex behaviour in a multi-level supply chain model

It is assumed that EDI system is not applied and there is no sharing information between entities in a supply chain. This paper is to show how the prediction parameter can produce a wide variety of dynamic behaviour. Despite the apparent simplicity of the chain, the bounded rationality of human decision making interferes with the information feedbacks, nonlinearities and time delays of the system to produce exceedingly complex behaviour. When simulated with different prediction parameter values, the model can exhibit bullwhip effect. Repeated simulation shows the prediction parameter values upon inventory level and order quantity. We discover the phenomenon of “amplification” in inventory and “shrinkage” in orders across supply chain levels.