Systems dynamics applied to business

First pass. This part is an early, deliberately qualitative draft. The owner has said more direction is coming, so expect it to be reshaped, shortened or reordered. It is written to stand on its own.

There are no formulas, no forecasts and no advice. Every loop is a reading, a way of looking. You decide whether it fits your business.

Maple Street Bakery and Northline Fabrication are invented for illustration; the numbers are not data.

Stocks, flows and loops

Part 2 introduced the vocabulary. In short: a stock accumulates, a flow adds to or drains it, a delay separates an action from its visible effect, and a feedback loop returns a result to change what happens next. A reinforcing loop amplifies; a balancing loop pushes toward a target or limit. Neither kind is good or bad in itself. A loop on a map is a reading, not a finding: two things that move together may be linked, or may both be responding to something else. The picture is useful because it can be questioned and redrawn.

Stocks you already know

• Flour and steel. Materials on the shelf. Deliveries fill the stock, and baking or cutting drains it. The bakery might count flour in 20 kg bags, the shop steel in bars.
• Cash. In the till and the bank. Sales fill it; rent, wages and supplier bills drain it. An unpaid invoice sits between the work and the cash.
• Orders waiting. Work promised and not yet delivered: Saturday special orders, open gate and bracket jobs.
• Customers. People who buy from you, or are willing to. A slow stock, fed by winning and drained by losing, and it carries habit, reputation and trust.
• Hours. Time people and machines can give. Unused hours do not carry over, so a stock only loosely.

A flow changes a stock, the stock influences another flow, and that is how a loop closes.

The recorded cash balance belongs to accounting. You can still describe cash as a stock: what fills it, what drains it, how long each takes. That is structure, not a ledger.

Loops that feed on themselves and loops that push back

Reinforcing: when something feeds on itself

Referrals at the bakery. Maple Street Bakery's regulars tell neighbours about the sourdough. Some neighbours become regulars, and more regulars means more people to tell others. You might read this as a reinforcing loop. It has a delay in it: a mention might take a few weeks to become a first visit. It also runs both ways: if loaves sell out by ten, the same loop can carry the shop downward quietly.

Rework at the fabrication shop. At Northline Fabrication, a gate that comes back with a poorly fitted hinge needs a few hours of welder time. Those hours are no longer available for new gates. If new gates are then welded in a hurry, some may also come back, and the stock of rework grows. You might read this as: more rework, fewer hours for careful work, more rework. A colleague may draw different links, and drawing it is how the differences show up.

Balancing: when something pushes back

The morning rush. At 7:30 the bakery's line is long, and the orders waiting at the counter pile up. People notice and hurry: they skip a second look at the display, or box things faster. The line shortens, the pressure eases, and the pace returns to normal. You might read this as a balancing loop whose target is "a line we are comfortable with".

More than one loop can pass through the same stock. A wrong order handed over quickly comes back as a complaint, which is rework again. Which loop dominates changes and is hard to see from the inside.

Price and demand. When Northline's schedule is full for two months, an operator might raise quotes, which may reduce enquiries and ease the schedule. When it is empty, they might lower them. You might read this as a balancing loop pulling demand toward what the shop can serve. Delay matters: signed jobs keep the schedule looking busy after the change. A drop in enquiries could be about price, season or a competitor. The map does not say which.

Delay and limits

Delay: why loops overshoot and swing

Put a balancing loop together with a delay and you often get overshoot: the response keeps acting after the gap has closed, because the evidence of closing has not arrived. If the response then reverses with the same delay, you get oscillation, a swing that repeats.

Steel with a long lead time. Northline's steel takes about three weeks to arrive after an order. A run of large jobs empties the rack, and the owner orders plenty. By the time it arrives, two of the jobs are done and the quiet stretch has started. The rack is now full and cash has gone into steel. You might read this as a balancing loop with a long delay inside it. Each order responded to the rack as it looked three weeks earlier.

Hiring lag. The bakery's Saturday special orders have kept growing, so the owner takes on a second baker. Finding, starting and learning the ovens all take time, and the current team carries extra load while training. With relief not yet arrived, the owner may feel a third person is needed. When both are fully effective, capacity may sit well above the orders.

None of this says a decision was wrong. Each was reasonable given what could be seen. The delay is part of the structure.

Limits and bottlenecks: why climbing loops level off

A reinforcing loop cannot climb forever. It meets something that cannot expand at the same pace.

Take the bakery's referral loop again. More regulars need more loaves. If the ovens bake only so many trays before 8:00, the line grows, loaves sell out, and with some delay fewer people recommend the shop. The reinforcing loop has met a balancing one.

In a chain of steps, the throughput of the whole chain is limited by its most constrained step: the bottleneck. At Northline, cutting, welding and finishing each have a pace. If cutting handles twelve gates a week and welding eight, the shop's rhythm may be eight, and cut steel piles up in front of the welder. It can move: relieving welding may make finishing the tightest step.

• A limit belongs to a step in the flow, not to the person who works there.
• Whether to hold a loop below its limit or let it reach it is your decision.

A worked example (illustrative)

Marta owns Northline Fabrication, with Sam and Luc. She starts with stocks: steel on the rack (in bars), orders waiting (in jobs), cut parts waiting for welding (in jobs) and unpaid invoices (in dollars). She counts each in its own unit and does not try to convert them.

Then she writes down a loop she has noticed. When the pile is high, everyone speeds up and some fits are checked less carefully. Jobs with a mistake come back to the welder, which pushes other jobs back. She reads this as: high pile, more speed, more errors, more rework, higher pile. Sam blames unclear customer drawings instead.

She also lists delays: rework shows up in days, steel in three weeks, an invoice is paid in about a month. Her last two decisions responded to a pile she had seen some weeks earlier.

She concludes nothing. She has a picture to put in front of Sam and Luc, who may agree, disagree or add loops of their own.