MRP/ERP

Understanding the Impact of System Dynamics
by Sal Ganino

In each year from 1976 to 1982, Atari, the industry leader in computer video games, virtually doubled its revenue. Revenues galloped from $35 million dollars to nearly $2 billion dollars in those short six years. But then came 1982 through 1984, that period when the company’s fortunes reversed themselves. In just one year Atari’s operating income fell from a positive $300 millions to a very sickly minus $600 million. They were not the only company to experience this meteoric or comet like entrance and departure, VisiCalc and WordStar, are virtually unknown to the current generation of computer users.

In 1985, when Apple introduced the Macintosh, Microsoft recognized it as a real treat to its future. Bill Gages counted this by introducing Windows 1.0, and almost immediately inducing Windows 2.0, a move that on its face value would have seemed foolish. The processing power of Intel’s 8088 and 80286 simply was insufficient to run these operating systems. But the folk at Microsoft understood Gordon Moore’s Law of Microprocessors, the law that stated memory and processing power would double every year.

System dynamics is a methodology for studying, understanding, and managing the behavior of complexities of “Boom and Bust”. It is a method for studying the world around us, but unlike other scientists who breaking it up into small pieces, system dynamics looks at the whole. System dynamics attempts to understand the basic structure of the system. The object and the people in a system interact through feedback loops. We might consider the example of money in a bank account. Money in the bank draws interest, which it left in the bank increase the size of the account. The larger account now earns more interest which in turn increases the size of the account and so on. Or consider standing in the bath tub and adjusting the hot and cold water flow until the water is the right temperature for the bath.

In its simplest sense, we focus on the flow of this feedback (in manufacturing it is the information that is transmitted up and down the supply line) that occurs throughout all the parts of a system. This feedback can generate exponential growth of inventory throughout the supply chain while at the same time collapse delivery performance to the customer. Too often, not understanding the impact of system dynamics, our answer is to throw more people at the problem. Fred P. Brooks, in 1975 published “Mythical Man-Month” in which he espoused the principle that became know as “Brooks Law”; ‘Adding manpower to a late (software) project made the project completion even later’. Tarek Abdel-Hamid, a PhD and student in system dynamics at MIT, later demonstrated that it did not always make the project later, but that it in fact did make the project more costly.