System Dynamics

System dynamics has turned out to be one of the best classes this summer. System dynamics uses the concept of feedback loops and simulation models to explain organizational, economic and social system behaviors. It was invented here at MIT by Jay Forrester who was a guest speaker at our class last week (it's amazing that at the age of 87, he is still just as fired up about system dynamics as he was when he invented the concept). System dynamics has taught me some of the most useful and practical concepts which I plan to use in my thesis (and to think that I almost didn't take the class...)

One of the simulation exercises we did was the so-called Beer Game. The game (which unfortunately doesn't involve actual beer) demonstrates how system dynamics comes into play in a simple supply chain compsed of a brewery (the manufacturer), a warehouse, a distribution center, and a retailer. A small disturbance in the customer order rate at the retailer end can cause havoc throughout the supply chain . Soon the order rate perceived at the manufacturer end begins to swing wildly even though the customer order rate at the retailer stays constant after a small, initial increase. Besides demonstrating the workings of the feedback loops, the game also shows what happens when people ignore the supply chain and make short-term decisions (the so-called bullwhip effect).

Our team actually won the beer game, much to our surpise. We managed to score below the average level (a lower score is better). The perfect score in this game I think is 200, but the average is about 2000 (which shows how badly people do in this game). Even though we did better than average we still experienced a significant bullwhip effect (the graphs on the right are our results compared with another team's results on the left; you can see the difference in the oscillations; we managed to keep ours at a lower level by being conservative in our ordering policy.