33 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. DOI: 10.4018/978-1-60960-135-5.ch003 Chapter 3 Application of Dynamic Analysis in a Centralised Supply Chain Mu Niu Northumbria University, UK Petia Sice Northumbria University, UK Ian French University of Teesside, UK Erik Mosekilde The Technical University of Denmark, Denmark INTRODUCTION The contemporary business environment is characterised by an acceleration of the process of change due in part to improved communica- tion and analytical capabilities brought about by modern Information and Communication Tech- nologies (Sterman, 2000; Terzi and Cavalieri, 2004; Ortega and Lin, 2004). This poses an ever increasing demand for periodical review of strate- gies and organisational processes, and for faster and more effective learning to deal with problem situations more quickly. Furthermore, companies increasingly need to react to customer require- ments (Hong-Minh, Disney and Naim, 2000). Naylor et al (1999) suggested the principles of agile manufacturing, i.e. responding to customer ABSTRACT This chapter presents dynamic analysis of a model of a centralised supply chain. The research was con- ducted within the manufacturing sector and involved the breathing equipment manufacturer Draeger Safety, UK A simplifed model of the Draeger Safety, UK centralised supply chain is developed and validated. Simulation and analysis are performed using System Dynamics, control theory, nonlinear dynamic and chaos theory. The fndings suggest that destructive oscillations of inventory could be gen- erated by internal decision making practices. Bifurcation diagram is plotted to indicate the bifurcation status of the model with different internal decision policies. A management microworlds is developed for managers to experiment with different decision scenarios and learn how the supply chain performs.