System dynamics modeling and robustness analysis for capital-constrained supply chain under disruption
| DOI | https://doi.org/10.1108/IMDS-01-2022-0028 |
| Published date | 21 November 2022 |
| Date | 21 November 2022 |
| Pages | 492-514 |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
| Author | Xiaoming Zhang,Yangyan Shi,Peng Zhang,Fang Xu,Chaozhe Jiang |
System dynamics modeling and
robustness analysis for capital-
constrained supply chain
under disruption
Xiaoming Zhang
Southwest Jiaotong University, Chengdu, China
Yangyan Shi
Macquarie Business School, Macquarie University, Sydney, Australia
Peng Zhang
Yibin University, Yibin, China
Fang Xu
Sichuan Tourism University, Chengdu, China, and
Chaozhe Jiang
Southwest Jiaotong University, Chengdu, China
Abstract
Purpose –The purpose of this study is to explore mitigation measures for cash flow interruption during the
epidemic and provide decision support to ensure the regular operation and robustness of the supply chain (SC).
Design/methodology/approach –Considering the scenarios of production capacity and demand disruption
during the epidemic, the authors adopt system dynamics (SD) to construct a three-echelon SC financial system
consisting of a core manufacturer, a capital-constrained retailer and the customer. In different interruption
scenarios, through the decision adjustments of stakeholders, the differences in performance are compared to
explore solutions for SC robust optimization.
Findings –The results show that partial credit guarantee (PCG) could solve cash flow interruption and
maintain the regular operation of the SC. During epidemic, with the product price increases, the revenue of
stakeholders and the robustness are generally negatively correlated. But whenthe manufacturer’s production
capacity is fully interrupted, increasing product price is the right decision for the retailer and could
simultaneously promote performance and robustness.
Originality/value –This paper primarily focuses on the PCG under the cash flow interruption caused by
epidemics. The authors adopt the supply chain finance (SCF) theory and SD method to supplementand expand
existing research on interruption management of SC. It is a pioneering study to explore the robustness of the SC
financial system under disruptions.
Keywords System dynamics, Disruption, Supply chain finance, Partial credit guarantee
Paper type Research paper
1. Introduction
Until now, the world economy has been severely affected by COVID-19. COVID-19 started off as
pandemic and eventually moved to an epidemic. The rapid spread of COVID-19 has caused
tremendous delivery and sales pressure on enterprises.Atthesametime,theinfluenceofCOVID-
19 on corporate cash flow is also huge. The epidemic is a typical black event for most companies,
especially for these small- and medium-sized enterprises (SMEs) (Kilpatrick and Barter, 2020).
IMDS
123,2
492
Funding: This work was supported by National Social Science Found of China (Grant No. 15BGL143),
Jiaji Railway Logistics Industrial Research Fund (Grant No. 2019H010402) and Sichuan Mineral
Resources Research Center (Grant No. SCKCZY2022-YB010).
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0263-5577.htm
Received 13 January 2022
Revised 11 April 2022
26 June 2022
14 August 2022
Accepted 11 October 2022
Industrial Management & Data
Systems
Vol. 123 No. 2, 2023
pp. 492-514
© Emerald Publishing Limited
0263-5577
DOI 10.1108/IMDS-01-2022-0028
SMEs are vulnerable because they only have sufficient cash flow for less than two months (Bartik
et al., 2020;Zhu et al., 2020). Unfortunately for SMEs, the McKinsey Global Institute highlighted
that those global shocks are becoming more frequent and severe; SC disruptions lasting a month or
longer now occur every 3.7 years at an average (Lund et al., 2020).
Literature on operations management used to assume sufficient capital for firms without
considering the capital constraint of SMEs. However, banks seldom grant new loans to SMEs,
especially during the epidemics (Chen and Cai, 2011). Buzacott and Zhang (2004) proposed that
the capital-constrained problem would change enterprises’operational decision. Supply chain
finance (SCF) focus aligning material, informationand financial flows. Thebenefits of the SCF
rely on cooperation among stakeholders within the SC, which typically results in lower debt
costs, new opportunities to obtain loans (especially for weak SC players) or reduced working
capital within the SC (Gelsomino et al., 2016). SCF has played an important role in operational and
financial management (Yan et al., 2016;Xu et al.,2018).As a new financing method and a way of
freeing up working capital, SCF could generate significant revenues, alleviate the financial
constraints of enterprises in SC, optimize working capital and cash flow and mitigate financial
risks (Polak et al., 2012).Affected by COVID-19,liquidityfor SMEs has been a significant part of
theglobal recovery.Despite the slowdownin globalGDP growth, the financingdemandof SMEs
still drivesthe continuous growth of SCF. Referring to theworld SCF report, edited by Bickers
(2021), the estimated global SCF transaction volume in 2020 increased by 35% over 2019, with
the highest growth rate of 37% in America, 35% in Asia, 31% in Europe and 34% in Africa.
Disruptions are hard to predict (Simchi-Levi et al., 2014) and frequent (Lund et al., 2020). SC
disruptions seriously affect the regular operation of the economy. This research primarily
focuses on the interruption of cash flow caused by the epidemic, adopting SCF theory and the
SD simulation method to construct a partial credit guarantee (PCG) simulation model. We
attempt to answer the following questions:
RQ1. In the context of COVID-19, will SCF continue to be effective in confronting the
interruption risk of cash flow to SMEs?
RQ2. In the context of COVID-19, how can SC managers improve SC robustness through
decision adjustments?
This paper models a financial SC of three tiers (i.e. one manufacturer, one capital-constrained
retailer and the customer) with PCG. We aim to explore mitigation measures for coping with
different types of disruptions. We adopt the SD approach to construct our simulation model. The
remainder of this paper is as follows. Section 2 reviews the existing literature closely related to
this research. Section 3 primarily focuses on the internal system, studies the decision-making
process of PCG, constructs an SD model to illustrate these interactions and presents the
mathematical formulationsin the model.Section 4 focuses on the epidemic impact on the system
and analyzes the robustness of the SC under epidemic. Section 5 discusses the results and
proposes managerial insights. Finally, section 6 summarizes contributions and li mitations.
2. Literature review
Our research is closely related to three streams of literature: (1) Partial credit guarantee for
downstream enterprises, (2) Supply chain robustness and (3) System dynamics simulation.
2.1 Partial credit guarantee for downstream enterprises
Shortage of funds is common in most industries and enterprises. Many scholars have
conducted related research on the capital constraint of downstream buyers or sellers. There
are three dominant financing modes for capital-constrained retailers (Li et al., 2020). The first
is retailer independent finance (RIF), with retailers independently applying for finance from
Capital-
constrained
supply chain
under disruption
493
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