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 MorecroftLondon Business School

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

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).

Overview of a Manufacturing Firm

Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

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.

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 rateSub-assembly scheduleMaster schedule of production

Raw material order rateSub-assembly schedule

Master schedule of production

MRP

Source: A Systems Perspective on Material Requirements Planning by John Morecroft, Decision Sciences 1983.

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.

Operating Policy, Information and Bounded Rationality

OperatingPolicy

12

34

5

Information

Asset Stock

FIVE FILTERS1. People’s cognitive limitations2. Operating goals, rewards and incentives3. Information, measurement and communication systems4. Organisational and geographical structure5. Tradition, culture, folklore and leadership

From Chapter 7 of Strategic Modelling and Business Dynamics by John Morecroft Wiley 2007.

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

Current ProjectAsset Stock Coordination

and Sustainability

Regional Fishery

FishShips

Global Industrial Society

Natural ResourcesPopulationCapitalCapital in AgriculturePollution

To learn more, attend my workshop on Thursday July 28‘Metaphorical Models for Managing the Transition from

Industrial Growth to Sustainability’

Related Publications

Asset Stock Coordination and Firm PerformanceGary 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 FeedbackMorecroft 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 DynamicsMorecroft JDW. 1983. A Systems Perspective on Material Requirements Planning,

Decision Sciences, 14 (1), 1-17.

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}