Assignment Problem Description After finishing your SD course, you decide to start working as a model-based business analyst.

Assignment

Problem Description

After finishing your SD course, you decide to start working as a model-based business analyst. Your first job consists of helping out the manager of a luxury car company that produces hand-made sports cars. The company faces severe inventory, production and workforce fluctuations from sales fluctuations. The manager wants you to make a model to understand the interactions between production, inventory and workforce in order to be able to reduce these fluctuations.

With you expertise in SD, you decide to make, first of all, a model in equilibrium with constant sales of 100 cars per month. These car sales empty the stock of inventory. The inventory initially consists of 300 cars and is replenished by a production inflow which equals the size of the workforce (i.e. the employees) times the productivity of an average worker. The average productivity is currently 1 car per person per month.

The target inventory currently equals the sales times an inventory coverage of 3 months. This target inventory is used to calculate the inventory correction which is used to calculate the target production. The inventory correction is calculated as:

(target inventory - inventory)/time to correct inventory

The time to correct inventory is currently 2 months. The target production is then the sales plus the inventory correction. The target production divided by the productivity of the average worker results in the target workforce. The discrepancy between the target workforce and the actual workforce currently drives the ‘hiring and firing’ strategy of the company as follows:

net hire rate = (target workforce - workforce )/time to adjust workforce of 10 months.

The workforce could be modeled as a stock variable regulated by the net hire rate. Since you will start out from equilibrium, you could take the target workforce as the initial value of the workforce.

Question

1.     Make a simple SD simulation model, simulate it over a period of 100 months. Check whether your model is in equilibrium.

2.     Now change the sales after 20 months from 100 cars per month to 150 cars per month. Make graphs to show the behavior of the sales, the inventory and the workforce .

3.      How long does it (more or less) take before the system is back in dynamic equilibrium?

4.     What is the closest archetype that represents this effect?

Problem Description (Continued)

Now, suppose that the company you work for is part of a supply chain consisting of 3 manufacturing companies, all three with the (same) structure developed in the first part. In fact, you are working for the assembler who sells the final product to the final customers. This assembler is supplied by a tier one supplier, and the tier one supplier is supplied by the tier 2 supplier. The tier 2 supplier faces extremely undesirable oscillations in demand and production.

Question

5.     Suppose that the production of the assembler constitutes the demand for the tier 1 supplier, and that the production of the tier 1 supplier constitutes the demand for the tier 2 supplier. Model the system: assume that the internal structures of these suppliers are exactly the same as the internal structure of the assembler. Assume that supply shortages are not solved with back-orders.

6.     What is the resulting dynamics for the three companies? What is the name of this effect?

7.     What could be done do to solve (or reduce) this undesirable effect for the entire supply chain?

8.     Use the model to find at least 1 simple policy to reduce the internal volatility of each of the companies.