Introduction System Dynamics Un instrument for System Thinking

Learning Objectives After this class the students should be able to: recognize their cognitive capacity limitation to deal is dynamic systems; understand the mean concepts of System Dynamics, such as feedback loop, delays; and archetype of systems; and interpret System Dynamics diagrams

Time management The expected time to deliver this module is 50 minutes. 20 minutes are reserved for team practices and exercises and 30 minutes for lecture

An experiment Suppose a simple supply chain that has been in steady-state for some time. The Retailer’s inventory has been constant at some level for a long time,

steady-state supply chain  A retailer maintains an inventory of product that is shipped to customers on demand.  Upon shipping, the retailer always orders immediately from his supplier the same amount of product just shipped.  The supplier also is very regular. He always deliveries the product to retailer 7 days after the he places the order.  The supplier has never been out ‑ of ‑ stock (and never will be!).  No product shipped by the supplier is ever, or will ever be, defective, damaged or lost in transit.

Demand changes Suppose, all of a sudden, the volume of demand from customer coming into the retailer steps up to a new higher level, and then remains there.

Sketch the new behavior  On the axes provided in Figure I, sketch the pattern you think will be traced by the level of the retailer's inventory, over time, following the one ‑ step ‑ increase to customer demand. ( Each team has 5 minute to give a answer. ) Figure 1

The retailer's inventory behavior following the step ‑ increase in demand, the Retailer's inventory will decline in a straight ‑ line manner for 7 days; it then will level off and remain at the new, lower level.

Cognitive Capacity limitation “In the long history of evolution it has not been necessary until very recent historical times for people to understand complex feedback systems. Evolutionary processes have not given us the mental ability to interpret properly the dynamic behavior of those complex systems in which we are now imbedded.” Forrester, 1973

System Dynamics  In particular, to analyze how the interaction between structures of the systems and their policies determine the system behavior  Methodology to study systems behavior

Filling a cup of water  Each team is invited to describe through any kind of diagram (or algorithm) the process to fill a cup of water. Imagine this as an exercise of operation management. (10 minutes)

Desired Water Level Perceived Gap Faucet Position Current Water Level Water Flow Language: causal diagram

Feedback loop and Delay  When we fill a glass of water we operate in a "water ‑ regulation" system involving five variables:  our desired water level, the glass's current water level;  the gap between the two;  the faucet position; and  and the water flow.  These variables are organized in a circle or loop of cause ‑ effect relationships which is called a "feedback process.“  Delays are Interruptions between actions and their consequences

Desired Water Level Perceived Gap Faucet Position Current Water Level Water Flow Delay Feedback loop with delay

Desired Water Level Perceived Gap Faucet Position Current Water Level Water Flow The means of arrows

Desired Inventory Level Perceived Gap Order Placed Current Inventory Level Supply Line  Balancing Process for Adjusting Cash Balance to Cash Surplus or Shortage Negative feedback

Sales Satisfied Customers Positive Word Mouth +  Reinforcing Sales Process Caused by Customers Talking to Each Other About Your Product Positive feedback

Archetypes of systems Certain patterns of structure recur again and again. These generic structures are named "systems archetypes". Archetype systems are a set of reinforcing and balancing feedback and delays interconnected. A relatively small number of these archetypes are common to a very large variety of management situations. Approach developed to study system behaviors taking into account complex structures of feedbacks and time delays. The industrial environment, seen as a set of stocks and activities linked by flow of information and flow of material submitted to time delays, is a typical object for System Dynamics study.

Creating our own Market Limitation

People Express example

People Express example

Reference Peter Senge, The Fifth Discipline, 1990 Chapter 5