CHAPTER 17
A Customer-Producer- Employment Case Study

In this chapter will be developed a dynamic model that resulted from a case study of an actual company. It arose from a search for causes of a fluctuating employment level that varied over a ratio of about 2 to 1, with peak-to-peak intervals of about 2 years. There seemed to be no likelihood that the explanation lay in a similar large variation in the final usage rate of the product. The model shows that the observed employment instability can result from interactions between the purchasing practices of the customers and the inventory, production, and employment practices of the company. The example is of interest here because it is typical of a substantial fraction of American industry. This chapter describes the industrial situation, gives the reasons for choosing the particular factors that went into the model, and develops the mathematical model. Chapter 18 contains the results of the model studies and methods of improving employment stability.

THE problem and system model discussed in this chapter arose from a case study of a company in the electronic components industry. The essential features of the actual study are retained here, although the description and the model have been simplified for clarity of presentation. In some places the model has been generalized to incorporate typical features of other industrial situations that did not appear important in the particular study. Some of the numerical values have been changed to make the model representative of a wider class of industrial situations where the particular case was atypical. None of these changes has had any major effect on the nature of the dynamic behavior nor on the kinds of conclusions that can be drawn.


17.1 Description

The situation relates to a supplier of components that are used by other manufacturers in their products, and these in turn are sold to industrial and governmental customers. The customers of the company under consideration are informed buyers purchasing a product in a manner that is geared to their own production demands.

The product is a high-quality electronic component that is manufactured by a number of suppliers and is used in military and industrial equipment. It had been generally considered, and appears to be true, that the average customer is interested first in quality, second in delivery, and third in price. Price can be relegated to third position partly because it is indeed less important to the customer than quality and availability, and partly because prices are competitive and differ but little between suppliers and appear not to be the principal basis for selection of a supplier.

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