Endogenous Demand Driven Supply Chain Cycles with Exogenous Shocks

In this article, we model the inventories and productions of a demand driven supply chain consisting of upstream, midstream, downstream and retail market. The dynamic system is a network of two-dimensional oscillators, considering positive feedback from lower stream demand and negative feedback from the need to circumvent inventory cost. Other features of the supply chain are also integrated into the model: bullwhip effect, sluggish response to demand change, and upstream industries' sluggish expansion process. This paper shows that supply chain exhibit endogenous fluctuations without the existence of exogenous shocks. Particularly, with certain parameters in our model, supply chain system presents minor degree of chaos.

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