Strategic Modelling and Business Dynamics: A Feedback Systems Approach

5.6. Chronic Cyclicality in Employment and Production and How to Cure It

5.6.1. The Curious Effect of Random Variations in Demand

Return to the model called 'Production and Workforce'. Open the icon for the retail order rate at the top of the production control sector. You will see the following equation: Retail Order Rate = 1 000 * NORMAL(1,0) + STEP(100,10) + RAMP(0,10) {refrigerators/week}. This is a versatile formulation for the exogenous retail order rate that allows a variety of different demand assumptions to be tested. We have already seen in Figures 5.19 and 5.20 the simulated effects of a one-time unexpected increase in demand from 1000 to 1100 refrigerators per month. This step change led to fluctuations in production and employment reminiscent of cyclicality experienced in the real factory, except that the fluctuations gradually subsided. To inject more realism, we repeat the simulation with the addition of randomness in the retail order rate. In the equation for the retail order rate, rewrite NORMAL(1,0) as NORMAL(1,0.05), which means that demand is normally distributed around 1 000 with a standard deviation of 0.05 or 5 per cent. Meanwhile, the original step increase in demand still takes place in week 10.

Press the 'Run' button to obtain the time charts shown in Figure 5.24. The retail order rate (line 1, top chart) is highly variable from week to week, moving in ...