Applying digital twins for inventory and cash management in supply chains under physical and financial disruptions

Abstract

ABSTRACT Supply chains (SCs) operate in a highly disruptive environment, where they face a variety of disruptions in product and cash flows. In such an environment, determining suitable inventory and cash replenishment policies ensures that cash and inventory are at the right place at the right time and provides a productive SC with high customer service levels. In this study, we first examine the impact of the disruptions in physical and financial flows on SC performance. We then, investigate the potential of a SC digital twin framework to help decision-makers in managing inventory and cash throughout the SC during disruption, currently absent from the literature. The proposed SC digital twin framework integrates machine learning (ML) and simulation to identify the inventory and cash replenishment policies that minimise the impact of the disruptions on SC performance. This approach proves effective in a SC disrupted by demand increase, capacity reduction, and credit purchase increase. Results show that employing the SC digital twin leads to a noticeable reduction in the cash conversion cycle for upstream members of the SCs. We observe that the cash conversion cycle for the upstream SC members is greatly impacted by the inventory policy employed by their immediate downstream members.