1. Reflections on System Dynamics Asset Stock Coordination, Performance and the Role of Information Keynote Talk for PhD Colloquium International System Dynamics Conference St Gallen, Switzerland July 2012 John Morecroft London Business School

2. Outline Inventory-Workforce model and cyclicality Coordination and performance in manufacturing firms Operating policy, information and bounded rationality A sample of projects – MIT, London and Brazil

3. The Inventory-Workforce Model Source:Mass NJ and Senge PM 1975. Understanding Oscillations in Simple Systems, MIT System Dynamics Group Working Paper, D-2045-2 (available from the System Dynamics Society on a DVD containing the complete D-memo series of the MIT System Dynamics Group).

4. Overview of a Manufacturing Firm Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

5. Information Flow Comparison of Order Point and MRP Methods in Material Control Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

6. Order Point versus MRP in Rival Manufacturing Firms Performance Comparison in Materials Control Unexpected 10 percent increase in customer demand, year 1 Order Point Raw material order rate Sub-assembly schedule Master schedule of production Raw material order rate Sub-assembly schedule Master schedule of production MRP Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

7. Order Point versus MRP in Rival Manufacturing Firms Performance Comparison in Labour Management Unexpected 10 percent increase in customer demand, year 1 Order Point Productivity Direct labor Overtime MRP Direct labor Productivity Overtime Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

8. Operating Policy, Information and Bounded Rationality Operating Policy 1 2 3 4 5 Information Asset Stock FIVE FILTERS 1. People’s cognitive limitations 2. Operating goals, rewards and incentives 3. Information, measurement and communication systems 4. Organisational and geographical structure 5. Tradition, culture, folklore and leadership From Chapter 7 of Strategic Modelling and Business Dynamics by John Morecroft Wiley 2007.

9. A Sample of Applied Research Projects Growth Management (Market Growth Model and Variations): Bio-Tech Startup Dynamics of Strategy: McKinsey and Goodyear Back to Cyclicality: Romeo and Juliet in Brazil; Shell and the Global Oil Producers

10. Current Project Asset Stock Coordination and Sustainability Regional Fishery Fish Ships Global Industrial Society Natural Resources Population Capital Capital in Agriculture Pollution To learn more, attend my workshop on Thursday July 28 ‘Metaphorical Models for Managing the Transition from Industrial Growth to Sustainability’ Stocks to Coordinate

11. Related Publications Asset Stock Coordination and Firm Performance Gary MS, Kunc M, Morecroft JDW and Rockart SF. 2008. System Dynamics and Strategy, System Dynamics Review 24(4), 407-429. Kunc M and Morecroft JDW. 2010. Managerial decisionmaking and firm performance under a resource-based paradigm, Strategic Management Journal,, 31(11), 1164- 1180. Morecroft JDW. 2009. Resource Coordination and Firm Performance: A System Dynamics View, 3-22 in Strategisches und operatives Produktionsmanagememt (a Festschrift honouring Peter Milling, editors Strohhecker and Grossler), Gabler Research. Warren KD. 2008. Strategic Management Dynamics, Chichester: Wiley. Bounded Rationality and Misperceptions of Feedback Morecroft JDW. 1985. Rationality in the analysis of behavioral simulation models, Management Science 31 (7), 900-916. Sterman JD. 1989. Misperceptions of feedback in dynamic decisionmaking, Organizational Behavior and Human Decision Processes 43 (3), 301-335. Manufacturing Dynamics Morecroft JDW. 1983. A Systems Perspective on Material Requirements Planning, Decision Sciences, 14 (1), 1-17.

12. Inventory-Workforce Equations Inventory(t) = Inventory(t - dt) + (Production_Rate - Sales_Rate) * dt INIT Inventory = 4000 {refrigerators} Production_Rate = Workforce*Productivity_Per_Man {refrigerators/week} Sales_Rate = Exogenous_Sales_Rate {refrigerators/week} Workforce(t) = Workforce(t - dt) + (Hire_Fire_Rate) * dt INIT Workforce = 200 {workers} Hire_Fire_Rate = (Desired_Inventory - Inventory)/(Inventory_Adjustment_Time * Productivity_Per_Man * Workforce_Adjustment_Time) Desired_Inventory = 4000 {refrigerators} Exogenous_Sales_Rate = 1000*NORMAL(1,0) + STEP(100,10) + RAMP(0,10) {units/week} Inventory_Adjustment_Time = 12 {weeks} Productivity_Per_Man = 5 {refrigerators per worker per week} Workforce_Adjustment_Time = 8 {weeks}