The Simulation Study On The Cost Of Material Procurement Supply Chain Based On System Dynamics

With the rapid development of China’s construction industry, a growing number of domestic construction companies are built. More and more intense competition leads to less profitable. So reducing project costs can improve the competitiveness of enterprises.The material costs of engineering projects account for around 60%-70% of the project costs. Therefore controlling engineering material costs is a key to control the project costs.Traditional engineering projects, material suppliers and construction companies often compete with each other. the competition between the two sides will substantially increase the cost of the project. Using the idea of the supply chain, the material suppliers and construction companies will study as a system. Through the analysis to the factors of the material storage costs, transportation costs, procurement costs, ordering costs, and inspection and test fees factor, we can know the the factors which minimize the cost of the entire system.In this paper, system dynamics(System Dynamics, referred to as SD) principle is used. First of all,according to research the Domestic and foreign literature, some factors which affect the total cost of materials procurement and inventory can be found.Then we can analyze the causal relationship between the various factors and draw the causality diagram of the project’s total cost of the supply chain so that the costs can be shown by reason tree. Secondly,through analyzing the causal diagram of the total cost of the project Supply Chain material procurement, the system dynamics model of the total cost of the materials procurement of the project supply chain is built.System is simulated by changing the four factors of the safety stock, each order quantity, lead time and the actual consumption rate for the construction side which is possible to influence the materials procurement of the project supply chain. We can change the value of four parameters of the safety stock, each order quantity, lead time and the actual consumption rate for the construction side to study the effect to the total system cost. Finally, on the basis of system dynamics model of the total cost of the project supply chain materials procurement, coupled with the VMI ideas which is building partnerships and establish information sharing, the system dynamics optimization model of the total cost of the project supply chain materials procurement is built. Then studying the change of unit price due to the variation of procurement lead to affects the cost of materials. The results show that with the increase of the amount of the purchase, storage costs are increasing. while due to the corresponding decrease lead to reduce the number of order fees, other expenses are changed accordingly. And the most economical order quantity value got by simulating, it can achieve the lowest total cost.In this paper, the idea of supply chain and the knowledge of the system dynamics are introduced to the engineering material cost management. Through building the system dynamics model of project supply chain material procurement, it can provide a new idea of the cost control of the engineering materials procurement.