CHAPTER 2
An Industrial System
Before starting the discussion in Part II of the philosophy and methodology of industrial dynamics, it seems best to give the reader a quick exposure to the kinds of results toward which we are working. In this chapter a simple model of a distribution system will be used to show how the form and the policies of an organization can give rise to characteristic and undesirable modes of behavior. Indication of ways to improve the system will appear, but the process of system redesign will be illustrated in another context in Chapter 18. We begin with a verbal description of the system. The details of actual model construction are postponed until Chapter 15. But using that model, this chapter proceeds to illustrate the kinds of questions that can be explored. It is the intent of this chapter to provide a motivation for further study of the subject. We shall here examine:
How small changes in retail sales can lead to large swings in factory production
How reducing clerical delays may fail to improve management decisions significantly
How a factory manager may find himself unable to fill orders although at all times able to produce more goods than are being sold to consumers
How an advertising policy can have a magnifying effect on production variations

THE general description of industrial dynamics in the first chapter should become more meaningful in the context of a simple example. How do the concepts of information-feedback systems apply to specific business situations? Or, stated differently, how do the delays and amplifications in the circuital flow of information in a company affect its operations? How can we use a model of such a system to discover the way its components affect its over-all behavior?


2.1 The Approach

The first step in a system study is to identify clearly the problem to be explored and the questions to be answered. This initial example must be kept simple. It will be wise, for the sake of clear explanation, to start with a very limited subsystem of an entire company. To maintain this initial simplicity, the questions we ask must deal with problems whose causes lie within a restricted part of the industrial enterprise. Later we can range more broadly over the management field.

The central core of many industrial companies is the process of production and distribution. A recurring problem is to match the production rate to the rate of final consumer sales. It is well known that factory production rate often fluctuates more widely than does

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