Systems Thinking versus Cause & Effect

Do you react to the immediate situation or think about the underlying system that might have caused the current situation?   System thinking is critical at Project X Ltd. for producing rapid results for our clients.  

In the Fifth Discipline, Peter Senge describes a business game that is used in training executives about system thinking.  A Mom & Pop Convenience store sold a beer called "Lover's Choice."  He sold 6 cases a week and had replenishment strategy of ordering the number of cases that he sold that week and they were delivered in three weeks. He had an inventory of twelve cases.  It worked like clockwork and he really did not hardly have to look to see how many he sold.  Then one week they sold eight cases.  The fellow ordered eight cases and his inventory was down to four.  The  next week he sold eight again and and was now down to two in inventory.  Again he was concerned so he ordered ordered twelve because he was now going to be out of stock.  People continued to buy eight a week and waited but he seemed have lost control of his inventory.

Meanwhile back at the plant the producer was overwhelmed with orders and the new marketing manager was elated.  The plant went on extra shifts and were in seventh heaven.  Then nobody ordered anything and they were really confused.  The marketing manager decided to visit some stores and found the stores were really angry because they had overstocked "Lover's Choice."   On his way back to the plant he was thinking about updating his resume and stopped in to have a coffee with the guy at the convenience store.  Over coffee, he asked "when did people stop buying Lover's Choice?"   The fellow said they have not stopped buying, I am selling eight cases a week like clockwork.  However I have way too much inventory.  

The business case asked the people what is the correct strategy for each person in the chain.

This problem exists all over.  The real key is the replenishment time and communication between the different parts of the supply chain. 

The important point of the story is most issues cannot be seen in isolation as part of a bigger system with complex feedback loops.  The book explains how to think about these things and how to think about the feedback loops. 

If you are in the cycle of ups and downs in your business, you have the problem.   

Apparently for the Mom & Pop Store, his original strategy was the best and he should not have lost his nerve and deviated for it. Obviously he was not the only retailer that lost their nerve.  By the way the cause of the increase of two cases a week was a popular singing group for this market had mentioned Lover's Choice in a song.  

I love this simple example of systems thinking.  I invite comments or criticism.



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