Session 2

System Dynamics
Learning Objectives

At the end of the session the students are

expected to
1. Understand the concept of system
dynamics
2. Understand the concept of system
optimization
1
Today Topics
 System definition
 System category
 System elements
 System complexity
 System performance metrics
 System variables
 System optimization
 System approach
 System analysis techniques

2
Introduction
• Simulation is a tool that is useful only
if one understands the nature of the
problem to be solved
• The challenge:
– Understanding how the system operates
– Knowing what to be achieved within the
system
– Able to identify key leverage points for
achieving desired objectives
3
Examples of Systems

• Both manufacturing and service systems

are termed processing system because
they process items through a series of
activities.
• Processing systems are
(1) Artificial (they are human-made)
(2) Dynamic (elements interact over time)
(3) Usually stochastic (they exhibit random
behavior)

4
Processing Systems
Manufacturing and Services systems
process items through a series of
activities:
 Manufacturing: raw materials are
transformed into finished products
 Service: customer enter with some
service need and depart as serviced
(satisfied) customer

5
Processing Systems (cont.)

Manufacturing Service systems:

systems: • Health care
• Small job shops facilities
and machining • Call centers
cells • Amusement
• Large production parks
• Public
facilities and
transportation
assembly lines systems
• Warehousing • Restaurants
and distribution
6
•
System Elements
From a simulation perspective, a
system
consists of
1. Entities
2. Activities
3. Resources
4. Controls.
These elements define the who, what,
where,
when and how of entity processing.
7
Elements of a system

activities

resources controls

Incoming entities system outgoing entities

8
(1) Entities
• Entities are the items processed through
the system such as products, customers
and documents.
• Entities can be subdivided into the
following types:
– Human or animate (customers,
patients, etc.)
– Inanimate (parts, documents, bins,
etc.)
– Intangible (calls, electronic mail, etc.)
9
Entity (cont.)
 For most manufacturing and service
system, the entities are discrete items.
 For some production system, called
continuous system, a nondiscrete
substance is processed rather than
discrete entities.
 Examples of continuous systems are oil
refineries and paper mail

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Characteristics of entities

 Cost
 Shape
 Priority
 Quality
 condition

11
(2) Activities
• Activities are the tasks performed in
the system that are either indirectly
or directly involved in the processing
of entities.
• Examples: servicing a customer,
cutting a part on a machine,
calculating payroll.
• Activities usually consume time and
often involve the use of resources.
12
Activities (cont.)

Activities may be classified as:

- Entity processing (check-in, treatment,
inspection, fabrication, etc.)
- Entity and resource movement (forklift
travel, riding in an elevator, etc.)
- Resource adjustments, maintenance
and
repairs (machine setups, copy machine
repair, etc.)
13
(3) Resources
• Resources are the means by which
activities are performed
• They provide the supporting
facilities, equipment and personnel
for carrying out activities.
• Resources have characteristics such
as capacity, speed, cycle time and
reliability.

14
Resources (cont.)

• Like entities, resources can be

categorized as
- Human or animate (operators,
doctors,
maintenance personnel, etc.)
- Inanimate (equipment, tooling, floor
space, computer, etc.)
- Intangible (information, electrical
power, etc.)
• Resources can also be classified as
being dedicated or shared,
permanent or consumable, and 15
(4) Controls

• Controls dictate how, when and where

activities are performed.
• At the highest level, controls consist of
schedules, plans, and policies.
• At the lowest level, controls take the
form of written procedures and machine
control logic.
• At all levels, controls provide the
information and decision logic for how
the system should operate.

16
Controls (cont.)

• Examples of controls include:

- Routing sequences
- Production plans
- Work schedules
- Task prioritization.
- Control software
- Instruction sheets.

17
System Complexity
Bounded
Rationality

Our limited ability to

grasp
real-world complexity
“The capacity of the human mind for formulating and solving
complex problems is very small compared with the size of the
problem whose solution is required for objectively rational
behavior in the real world, or even for a reasonable
approximation to such objective rationality” (Herbert Simon,
1957)

18
System Complexity
(cont.)
Function of :
• Interdependencies between elements
so that each element affects other
elements
• Variability in element behavior that
produce uncertainty

+ =
interdependencies variability complexity

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Interdependencies
• Interdependencies cause the
behavior of one element to affect
other elements in the system.
• Analytical difficulty as a function of
the number of interdependencies
and random variables.

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Interdependencies (cont.)

• The complexity of a system has

less to do with the number of
elements in the system than with
the number of interdependent
relationships
• Tight or loose interdependencies

21
Interdependencies (cont)

 For many systems, “cause and effect

are not closely related in time and
space” (Peter Senge, 1990)

 Interdependencies, though they may be

minimized somewhat, are simply a fact
of life and best dealt with through
effective coordination and management

22
Interdependencies (cont.)

Analytical difficulty
as a function of the

analytical difficulty
number of

Degree of
interdependencies
and random
variables

Number of interdependencies
and random variables

23
Variability

• Variability is a characteristic inherent in

any system involving humans and
machinery.
• Variability propagates in a system so that
“highly variable outputs from one
workstation become highly variable inputs
to another” (Hopp and Spearman 2000)

24
Variability (cont.)

Types of Examples
Variabilit
y
Activity Operation times, repair times, setup
times times, move times
Decisions To accept or reject a part, where to
direct a particular customer, which task
to perform next
Quantitie Lot sizes, arrival quantities, number of
s workers absent
Event Time between arrivals, time between
intervals equipment failures
Attributes Customer preference, part size, skill
level 25
Variability (cont.)

 MRP  designing systems based on

average requirement
 Variability should be reduced and even
eliminated wherever possible
 Simulation can help identify the degree
of improvement that can be realized if
variability is reduced or even eliminated

26
System Performance Metrics

Metrics are measures used

to assess the performance of
a system

27
Key operational metrics
Key operational metrics that describe the
effectiveness and efficiency of manufacturing
and service systems include the following:
a) Flow time
• is the average time it takes for an item or
customer to be processed through the
system.
• Synonyms include cycle time, throughput
time, manufacturing time, customer
response time, turnaround time, and
makespan (time to process a given set of
job).

28
Key operational metrics (cont.)
b) Utilization
is the percentage of scheduled time that
personnel, equipment and other resources
are in productive use.
c) Value-added time
• is the amount of time material, customers
and so forth spend actually receiving value,
where value is defined as anything for which
the customer is willing to pay.
• Non value-added time  inspection time,
waiting time

29
Key operational metrics (cont.)

d) Waiting time
• is the amount of time that material,
customers and so on spend waiting to be
produced.
• The greatest component of non-value-added
time
e) Flow rate
• is the number of items produced or
customers serviced per unit of time (such as
part of customers per hour).
• Synonyms include production rate,
processing rate and throughput rate.
f) Inventory or queue levels
is the number of items or customers in
storage or waiting areas. 30
Key operational metrics (cont.)

g) Yield
• is the percentage of products completed
that conform to product specifications as a
percentage of the total number of products
that entered the system as raw materials.
• If 95 out of 100 items are nondefective, the
yield is 95%.
• Yield can also be measured by its
complement-reject or scrap rate.

31
Key operational metrics (cont.)

h) Customers responsibilities
• is the ability of the system do deliver
products in a timely fashion to
minimize customer waiting time.
• also called as fill rate (number of
customer orders that can be filled
immediately from inventory).

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Key operational metrics
(cont.)

i) Variance
• is the degree of fluctuation that can and often
in any of the preceding metrics.
• Variance introduces uncertainly, and therefore
risk, in achieving desired performance goals.

33
System Variables

a) Decision variables
• also called input factors or independent
variables (in an experiment)
• Changing the values of a system’s independent
variables affects the behavior of a system.
• Independent variables may be either
controllable (such as the number of operators to
assign a production, etc.) or uncontrollable
(such as the time to serve a customer, the
reject rate of an operation, etc.) depending on
whether the experimenter is able to manipulate
them.
• When defining the system, controllable are the
information about the system that is more
prescriptive than descriptive. 34
System Variables (cont.)
b) Response Variables
• Sometimes called performance or output
variables
• Measure the performance of the system in
response to particular decision variable
settings.
• Examples; the number of entities processed for
a given period, the average utilization of a
resource.
• In an experiment, the response variable is the
dependent variable which depends on the
particular settings of the independent
variables.
• Obviously, the goal in systems planning is to
find the right values or settings of the decision35
variables that give desired response values.
System Variables (cont.)

c) State Variables
• Indicate the status of the system at any
specific point in time.
• Examples of the state variables are the
current number of entities waiting to be
processed or the current status (busy, idle,
down) of a particular resource.
• State variables are dependent variables like
response variables in that they dependent on
the setting of the independent variables.
• State variables are often ignored in
experiments since they are not directly
controlled like decision variables.
36
System Optimization

• Finding the right setting for decision variables

that best meets performance objectives is
called optimization.
• Specifically, optimization seeks the best
combination of decision variable values that
either minimizes or maximizes some objective
function such as costs or profits.
• An objective function is simply a response
variable of the system.

37
Example:
Cost curves showing optimum number of resources
to minimize total cost

Total cost

Resource costs
optimum
Cost

Waiting costs

Number of resources

38
The System Approach

• Approaching system design with overall

objectives in mind and considering how each
element relates to each other and to the
whole is called a system or holistic approach
to system design.
• The defining characteristics of a system is
that it cannot be understood as a function of
its isolated components. The behavior of the
system doesn’t depend on what each part is
doing but on how each part is interacting
with others.
• Whether designing a new system or
improving an existing system, it is important
to follow design principles that take into 39
Systems Engineering

• The activity of system design and process

improvement is called systems engineering.
• Systems engineering also be defined as the
effective application of scientific and
engineering efforts to transform an operational
need into a defined system configuration
through the top-down iterative process of
requirements definition, functional analysis,
synthesis, optimization, design, test and
evaluation (Blanchard 1991).
• To state simply it, systems engineering is the
process of identifying problems or other
opportunities for improvement, developing
alternative solutions, evaluating the solutions,
and selecting and implementing the best40
solutions.
Four-step iterative approach to
system improvement

Identify problems
and opportunities

Select and Develop

implement the alternative
best solution solutions

Evaluate the
solution

41
Systems Analysis Techniques
Simulation improves performance
predictability

100%
System predictability

With simulation

50%
Without
simulation
Call centers Banks Airports
Doctor’s offices Emergency rooms Hospitals
Machining cells Production lines Factories
0%
Low Medium High
System Complexity
42
Systems analysis tools

a) Hand Calculations
b) Spreadsheets
c) Operation Research Techniques
d) Special Computerized Tools for scheduling,
layout, and so forth
e) Simulation

43
Summary
• Manufacturing and service systems consist of
interrelated elements that interactively function
to produce a specified outcome
• Systems are made up of entities, resources,
activities, and controls
• Two characteristics of systems that make the so
difficult to analyze are:
– Interdependencies
– variability

44
Summary (cont.)

• Variables of interest in system analysis are:

– Decision variables
– Response variables
– State variables
• System performance metrics or response
variables are generally time, utilization,
inventory, quality, or cost related

45
Summary (cont.)
• System optimization seeks to find the best
overall setting of decision variable values that
maximizes or minimizes a particular response
variable value
• Simulation is capable of imitating complex
systems of nearly any size and to nearly any
level of detail  leads designers toward good
design decisions

46
Systems Analysis Techniques
• Operations Research Techniques
Systems Analysis Techniques
Systems Analysis Techniques
Systems Analysis Techniques
Systems Analysis Techniques
Systems Analysis Techniques
Review Questions
• Why is an understanding of system dynamics
important to the use of simulation?
• What is a system?
• What are the elements of a system from a
simulation perspective? Give an example of each.
• What are two characteristics of systems that make
them so complex?
• List three performance metrics that you feel would
be important for a computer assembly line.
• List three performance metrics that you feel would
be important for a hospital emergency room.

53
7. What is the difference between a decision
variable and a response variable?
8. Identify five decision variables of a
manufacturing or service system that tend
to be random.
9. Give two examples of state variables.
10. Define optimization in terms of decision
variables and response variables.
11. Is maximizing recourse utilization a good
overriding performance objective for a
manufacturing system? Explain.
12. What is a systems approach to problem
solving?
54
13. How does simulation fit into overall
approach of systems engineering?
14. In what situations would you use
analytical techniques (like hand
calculations or spreadsheet modeling)
over simulation?
15. Assuming you decided to use simulation
to determine how many lift trucks were
needed in a distribution center, how
might analytical models be used to
complement the simulation study both
before and after?
16. What advantages does simulation have 55
over traditional OR techniques used in