The physics of e-commerce supply chains

Abstract

The Internet is rapidly improving our ability to support information flows across global supply chains. However, the business impact of these IT investments depends not just on the information flows supported by such systems, but also on other non-information related characteristics of the supply chain. It is the complex interplay among these characteristics that results in business performance, or lack thereof. In order to better understand the business impact of IT investments in the supply chain, we are motivated to examine the ‘physics’ of supply chain structures. By physics, we mean the performance patterns inherent in its informational and physical characteristics. Using the systems dynamics methodology, we model basic information and physical characteristics of supply chains and examine their impact on some common measures of performance. Experiments with the models suggest that, in addition to information delays, physical delays also have a major impact on the stability of supply chains, as well as on operating cost. Moreover, the tradeoff between chain stability and responsiveness appears to be nonlinear, suggesting that a small compromise in responsiveness may yield larger gains in stability. Multi-tier chains appear to be less ‘stiff’ in responding to demand fluctuations, implying that their information systems must be specifically designed to overcome this structural tendency. These results have managerial implications in terms of designing the information and physical structure of a supply chain as well as for its operation.