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 significant delays in measuring the stock level, are considered: the first 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. Copyright © 2010 System Dynamics Society.