Reference #334: Thinking in Systems

The existence of delays in a balancing loop makes a system likely to oscillate. Consider how a car dealership responds to a 10% increase in sales from increased customer demand. The dealer waits to see whether the trends lasts (introducing a delay), then orders more cars to cover this new rate of sale. She also needs to account for the time the orders take to come in and so increases her order further.

When the orders arrive the inventory recovers — yet it over-recovers, since more cars than needed were ordered in the period of uncertainty. This causes the dealer to order less next time. Invariably, she orders too little due to uncertainty about the future. Hence inventories get too low again; and so the inventory oscillates around the desired level of the stock.

Meadows. Thinking in Systems, 2008. (52-54)

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