4.4 Formulating the system dynamics model
4.4.1 Area 1: Organisational focus
As discussed previously this area and sector is what I refer to as the core of the business, which is to ensure customer deliveries are carried out in an efficient and effective manner.
Figure 4.6: Organisation focus overview with inputs
As you would have noticed, Figure 4.5 and Figure 4.6 are similar to each other with a few minor but important differences. The additional convertors seen in this sector reflects the inputs into the inflow and outflow in the form of ghosts which stem from some of the other sectors that will be discussed later in this Chapter. They are relevant inputs into the producing inflow as well as the customer deliveries outflow as they capture the dynamics and feedback loops that are in existence in the real world environment. The inventory level stock will be further seen and used in other sectors within the model such as supply planning, customer ordering and management information system.
70 INFLOW:
Producing = DELAY (final production plan * output reliability, 3)
Figure 4.7: Producing to stock inflow
The formulation for producing to stock inventory can be broken down into two elements, namely the “final production plan” and “output reliability” convertors as shown in Figure 4.7. This feeds into the “inventory level” stock, which will be explained further down.
Producing inflow:
It can be seen from the diagram that the inputs feeding into the producing inflow are the “final production plan” and “output reliability”. The “final production plan” is an output of the supply planning sector and is measured in units/week that the factory should be producing. How this value is derived is explained in further detail in the supply planning sector.
The “output reliability” is a constant derived from the historical numerical database and is the current reality with regards to the factory output. The “producing” inflow is therefore a multiplicative formula and is expressed as the product of the “output reliability” and “final production plan”, with a built in delay. The “DELAY” at the start of the equation denotes that the inflow value, which will feed into the stock, will be delayed by the last value in the equation, which in this case is 3 weeks. The delay value used is indicative of what is occurring operationally
INVENTORY LEVEL Producing
output reliability
final production plan
Dimensional analysis:
Left hand side: [units/week]
Right hand side: [units/week] * [percentage], 3 weeks delay = [units/week)
71 and the total time taken from publication of the plan to the factory, to production and distribution of stock to the warehouses ready for customer orders.
It is worth pausing to explain how the dimensional analysis process aided in ensuring that the Unit of measure (UoM) used in the model is consistent and hence contributes towards the testing of the model.
The above dimensional analysis box reflects the original UoM used in this equation. If one looks at the right hand side portion of the dimensional analysis box, it is noticed that units/week multiplied by units (highlighted in red) would return a units²/week, which renders the equation meaningless. This was the original view, which the use of dimensional analysis identified as a simple but easily overlooked flaw in the model.
On closer examination of the operational thinking information that was obtained from individuals as well as further discussions with factory and planning personnel, a simple conclusion was reached. Output reliability is actually a percentage that is reflective of the factory performance;
hence, the UoM used should be percentage and not units. However, instead of being shown as 97% in the model, I chose to reflect it as 0.97. So in essence, the equation stands up to scrutiny and is acceptable.
Note that the unit of measure (UoM) is consistently applied in all equations. The size of the producing inflow will be driven by the “final production plan” with the boundaries of this convertor being explained in the supply sector further in this Chapter.
Dimensional analysis:
Left hand side: [units/week]
Right hand side: [units/week] * [units], 3 weeks delay = [units/week)
Dimensional analysis:
Left hand side: [units/week]
Right hand side: [units/week] * [percentage], 3 weeks delay = [units/week)
72 INVENTORY LEVEL STOCK:
INVENTORY LEVEL (t) = INVENTORY LEVEL (t - dt) + (Producing – Customer Deliveries) * dtINIT INVENTORY LEVEL = 87266
OUTFLOWS:
Customer Deliveries = customer deliveries 1 + customer deliveries 2 Dimensional analysis:
Left hand side: [units/week]
Right hand side: [units/week] + [units/week] = [units/week]
Figure 4.8: Inventory levels and customer deliveries
The formulation for “inventory level” and “customer deliveries” is shown in Figure 4.8. The
“inventory level” stock reflects the quantity of products that is available for “customer deliveries”
per week.
INVENTORY LEVEL
Customer Deliveries
customer deliveries1
customer deliveries 2
Dimensional analysis:
Left hand side: [units/week]
Right hand side: [unit/week] + [units/week] – [units/week] = [units/week]
with an initial inventory level of 87266 in week 1.
73 Inventory level stock:
As with most manufacturing organisations, in order to supply customer needs the organisation has to produce what the customer requires. In this particular FMCG organisation, inventory is carried to satisfy customer requests as orders are placed and delivery expected within a minimum lead time. This stock is merely a subtraction of the inflow (“producing”) and outflow (“customer deliveries 1” and “customer deliveries 2”) whilst taking into consideration the opening inventory balance. Typically, within the iThink software the stock used would need to have an initial value specified. The value of 87266 units is the opening balance at the start of a financial year and is based on a stock holding policy, which stipulates that the inventory level must be equivalent to 3 weeks sales demand.
The dimensional analysis for the “inventory level” stock reflects the units of measure (UoM) that was used in the equation. As can be observed the UoM on the left hand side is equal to the UoM on the right hand side of the equation and is reflective of the units produced, held the warehouse and delivered to customers in a given week. To simplify this means the equation is using common variables and hence will return a plausible result.
In this study, two types or variations of customer deliveries are done, hence the equation above is a straight forward summation of “customer deliveries 1” and “customer deliveries 2”. The detail behind “customer deliveries 1 and 2” resides within the distribution sector and will be explained later in the Chapter. As much as we would want instantaneous customer deliveries within this industry it is not possible, hence the delay for the outflow is reflected in the distribution sector. It is worth mentioning at this stage that the actual customer ordering process is explained within the customer ordering sector and feeds into the distribution sector. Given the straight forward nature of these formulae you would notice that the left hand side and right hand side UoM is the same.
This sector captures another dynamic that is evident in reality. This reality is simply that instantaneous replenishment (inflow) and stock depletion (outflow) is not possible and there is a delay in both. Subsequent sectors which will be explained revolve around the organisational focus sector and captures both the 10 000 metre and operational thinking views.
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