An increase in business overheads due to the enterprise dynamics is postulated to be a cubic function of the area between the actual response of a company in the supply chain and a theoretical neutral axis, where demand equals supply. Reduction of these dynamics has become critical to the competitiveness of the company and even the whole supply chain. The impact of seven causal factors on the dynamic performance of a generic supply chain simulation with reference to the beer game is studied, guidelines for supply chain re‐engineering in order to reduce such dynamics are provided, and coordination dynamics in networking organizational structure are identified. It is then shown that reduction of coordination dynamics is an alternative solution to structural re‐engineering, e.g. shortening manufacturing and transport lead times. Explores the dynamic performance of both centralized and decentralized coordination mechanisms and proposes that there is no essential difference in performance; the latter is more flexible and allows for autonomy of different companies if it is well coordinated. Finally, proposes a decentralized coordination method by using a market mechanism.
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