Simulation study of SCM-related factors on retailer's performance using structural equation model

In this study, a two-level supply chain with linear demand and seasonal swings is simulated under varying operating situations in order to explore the relationships among bullwhip effect, lead time, forecast accuracy, seasonality, service levels and retailer's performance. Next, a series of univariate tests are undertaken to identify the relationships among the simulation outputs. Based on a structural equation model (SEM), a research framework is developed and tested to provide a rigorous analysis for the casual links among the SCM-related variables and retailer's performance. When the ratio of backorder to holding cost is lower than 8, lead time would appear as the most significant factor influencing total inventory cost. However, when this ratio is higher than 8, both bullwhip ratio and lead time appear to be equally important factors in improving retailer's performance. Finally, the forecast accuracy was found to have a positive effect on reducing total inventory cost.