Strategic Modelling and Business Dynamics: A Feedback Systems Approach

7.5. Policy Structure and Formulations for Limits to Sales Growth

Although the sales force is vital for generating orders, we also know that product availability is a very important consideration for buyers. Even the most successful sales force cannot sell a product that is not available. Intuitively, we might expect customer orders to be limited by production capacity and therefore write the following equation to capture that constraint (where MIN is a logical function that selects the minimum value of the two expressions in parentheses).

However, a moment's reflection reveals this is not a good formulation. It fails the Baker criterion because it implies that customers know the factory's production capacity and ignore the efforts of the sales force the moment the limit of production capacity is reached. Figure 7.15 shows a much more realistic and subtle formulation in which customers respond to delivery delay and where delivery delay depends indirectly on both production capacity and the utilisation of capacity. The beauty of this formulation is that customers know delivery delay (from experience or rumour) and regard it as very important in their ordering decision, consistent with our earlier discussion of the customer ordering policy. Moreover, the formulation is dynamically interesting. In the short-to-medium term, it allows the freedom for customers to order more than the ...