Industrial Dynamics

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INDUSTRIAL DYNAMICS

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Feb Apr Jun Auq Oct

Limited Factory Capacity. So far we have considered only simple situations. Additional realities of company operation can be added as needed. In the preceding exhibits we assumed that the factory was able to produce at whatever level was desired. In a more realistic situation, with limited factory capacity, some surprising new effects develop. Figure 2-5 shows the effect of a maximum factory capacity limit that is 20% above the average sales level. As before, the system is completely stabilized at the beginning of the first year; then it is assumed that retail sales rise and fall 10% during each year. Retail sales never reach production capacity. Yet because of the inventory and pipeline effects, distributor orders to the factory do exceed its capacity. Furthermore, as factory deliveries

year

Feb Apr Jun

become slower, distributors begin to order further in advance of needs, and still more orders are put into the system. As a result the factory operates at full capacity for three months during the first year. Then inventory demands are filled at a time that coincides with falling retail sales. In the last half of the year, falling retail sales and inventory liquidation combine with the reduction of in-process orders which results from improving delivery. In the third quarter we see a combination of rapidly falling factory orders, a swiftly declining backlog of unfilled orders, and a suddenly rising factory inventory. The natural result is to curtail production from its maximum level, here falling to 62% below normal. Unlike the first year, the system now enters 30

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suspended and

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Figure

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