Stock management in the presence of significant measurement delays

Abstract

The stock management studies in the system dynamics literature implicitly or explicitly assume that measurement delays are negligible. This assumption may be true in some cases but it will not hold in all cases. As a matter of fact, either long or short, measurement delays are always present in dynamic feedback control systems. In this paper, two stock management problems, which incorporate signifi cant delays in measuring the stock level, are considered: the fi rst problem does not have a supply line delay, while the second problem does. For the second problem, we further assume that the level of the supply line cannot be directly measured. The standard anchor-and-adjust heuristic creates unstable oscillations in both cases due to the delay involved in accessing the value of the stock. On the other hand, the improved decision-making heuristic introduced in this paper creates a stable and fast response in the dynamic behavior of the stock because it accounts for the fact that the information is delayed.

Results of a beer game experiment: Should a manager always behave according to the book?

“…Lead time (i.e., supply line delay) is the cause for the existence of a supply line and, thus, the main reason of the challenge in managing a stock (Diehl and Sterman, 1995;Kleinmuntz, 1993;Sterman, 1989a andChapter 17 in 2000;Yasarcan and Barlas, 2005;Yasarcan, 2010 and2011). Lead time is defined by its average delay duration and order (Barlas, 2002;Chapter 9 in Forrester, 1961;Mikati, 2010;Chapter 11 in Sterman, 2000;Yasarcan, 2011;2005b;Venkateswaran and Son, 2007;Wikner, 2003).…”

“…Lead time is defined by its average delay duration and order (Barlas, 2002;Chapter 9 in Forrester, 1961;Mikati, 2010;Chapter 11 in Sterman, 2000;Yasarcan, 2011;2005b;Venkateswaran and Son, 2007;Wikner, 2003). In this paper, the average duration of the lead time is referred to as Acquisition Delay Time (  in Sterman, 1989a), and it represents the average lag between the control decisions and their effects on the stock.…”

“…Weight of Supply Line (  in Sterman, 1989a), the relative importance given to the supply line compared to the importance given to the stock, and Stock Adjustment Time ( Sterman, 1989a), the intended time to close the discrepancy between the desired and current levels of the stock, are the two critical decision parameters of the anchor-and-adjust ordering policy (Sterman, 1989, Chapter 17 in 2000Sweeney and Sterman, 2000;Yasarcan and Barlas, 2005;Yasarcan, 2011). In stock management, it is a critical issue to obtain a fast and stable response from the stock, which can only be ensured by a proper selection of values for these two parameters.…”

“…Hence, when Weight of Supply Line is equal to unity, it ensures non-oscillatory stock behavior regardless of the duration and order of the lead time, and therefore, it is often used in stock management Sterman, 1989a andChapter 17 in 2000;Yasarcan, 2011;.…”

“…Stock management is a widely encountered task in complex dynamic systems, in which the aim is to alter the level of a stock towards a desired point and maintain it at that point (Diehl and Sterman, 1995;Sterman, 1987a, 1989a, and Chapter 17 in 2000Sweeney and Sterman, 2000;Yasarcan and Barlas, 2005;Yasarcan, 2010 and2011). The generic stock management structure captured in Fig.…”