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Unformatted text preview: 18.03.2010 I E 398 Systems Thinking Spring 2010 Recitation 3 EXAMPLE 1 Production Lot Size & Customer Demand The size of the production lot affects costs in several ways. At first glance, it is obvious that as the lot size increases, unit production cost decreases. But production lot size also affects demand rate. When the production lot size increases, customers will wait for a product for a longer time; since setup time between production lots will be greater. Increasing waiting time will decrease the demand for that product. Eventually, the lot size of that product will decrease since lot size is a direct function of the sales. But since customers start receiving the product more quickly than usual, demand will rise. As the demand increases steadily, the lot size would increase again and this will go on like that. EXAMPLE 2 Inventories The manager of a store faces a problem in controlling the supply of things he has for sale. He doesnt want to get stuck with boxes of stock which no one wants to buy, because that way he loses money. On the other hand, he doesnt want to run out of things that people want to buy, because then they will go to another store and he will lose money again. So, if something sells more slowly than expected, he must quickly reduce or cancel his orders. If it is slowly than expected, he must quickly reduce or cancel his orders....
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- Spring '10