Limits and Delays in Systems

• Systems surprise us because we like to think about single causes neatly producing single effects. And, we don’t like to think about limits, especially when our own plans and desires are involved.
• But we live in a world where many inputs often come together to produce many outputs. And virtually all of the inputs, and therefore outputs, are limited.
• For instance, a manufacturing process needs physical capital, labor, energy, raw materials, customers, and land. A patch of growing grain needs sunlight, water, soil, and nutrients.
• Companies can’t keep going without raw materials, no matter how many customers they have. Or without customers, no matter how much raw materials they have.
• It doesn’t matter how much soil is available for the grain, if what’s short is water. It does no good to pour more water, if the problem is a lack of soil.
• Bread won’t rise without yeast, no matter how much flour and water it has. Children won’t thrive without carbohydrates, no matter how much protein they eat.

The Limiting Factor

• At any given time, the input that’s most important to a system is the one that’s most limiting. This concept of a limiting factor is simple, yet widely misunderstood.
• Rich countries transfer capital and technology to poor ones, yet wonder why the economies of the receiving countries still don’t develop. But they rarely think that capital and technology may not be the most limiting factors.
• Economies evolved at a time when labor and capital where the most common limiting factors to production. Therefore, most economic production functions only keep track of these two factors, and sometimes technology as well.
• But as the economy grows, the limiting factors shift to clean air and water, and acceptable sources of energy and raw materials. And when this happens, the traditional focus on capital and labor is no longer helpful.
• Let’s say you’ve started a company that’s growing rapidly. Your challenge is to identify and overcome its shifting limits that change in response to the company’s own growth.
• For instance, suppose you hire salespeople who are so good that they generate orders faster than the factory can produce. As a result, deliveries are delayed and customers are lost, because production capacity is the most limiting factor.
• To deal with this, you expand the capital stock of production plants. Now, people are hired in a hurry, but not trained enough. Product quality suffers and customers are lost again, because labor skill is now the most limiting factor.
• So, you invest in worker training, and quality improves. New orders come in, but now the order-fulfillment and record-keeping system is clogged. And so on.

Gaining Insight From Changing Limits

• There are limits around every growing plant, child, product, technology, company, economy, and population. Insight comes from recognizing the limiting factor, as well as from seeing that growth itself depletes or enhances limits, and therefore changes what is limiting.
• In other words, whenever one factor is no longer limiting, growth occurs. But that growth itself changes the relative scarcity of other factors until another one becomes limiting. So, to shift attention from the abundant factors to the next potential limiting factor is to gain real understanding of, and control over, the growth process.
• However, understanding layers of limits and keeping an eye out for the next limiting factor doesn’t guarantee perpetual growth. For any physical entity in a finite environment, perpetual growth is impossible.
• Ultimately, the choice isn’t to grow forever, but to decide what limits to live within.
• For instance, if a company makes the perfect product and offers it at an affordable price, it’ll be swamped with orders until it grows to the point where some limit decreases the perfection of the product or raises its price.
• If a city meets the needs of all its residents better than any other city, people will flock there until some limit reduces the city’s ability to satisfy its peoples’ needs.
• There will always be limits to growth. If company managers, city governments, and the human population don’t enforce their own limits and keep growth within the capacity of the supporting environment, then the environment will enforce limits for them.

Delays

• It takes time for:
  • a plant to grow,
  • letters put in a mailbox to reach their destinations,
  • consumers to respond to changing prices and alter their buying behavior,
  • a machine to wear out, and
  • a new technology to penetrate an economy.
• We tend to be surprised over and over again at how much time things take. But delays are common in systems.
• Every stock is a delay. Flows have delays, including shipping, perception, processing, and maturation delays.
• The delay between the initiation of a disease such as cancer and its growth to become a visibly detectable cancer can take many years, depending on whether the early cancer growth is given the right conditions in which to grow.
• Just as the right boundaries to draw around a diagram of a system depends on the purpose of the discussion, so do the important delays.
• If you’re concerned about fluctuations that take weeks, you probably don’t need to think about delays that take minutes or years. But if you’re focused on the performance and growth of the stock market over several decades, you can usually ignore fluctuations in price levels over the weeks and years.
• The car dealer who tries to maintain enough inventory to cover ten days’ worth of sales demonstrated how important delays in feedback are to the behavior of systems.

Delays Can Change System Behavior

• Changing the length of a delay can significantly change behavior. Delays are often important leverage points in systems, if they can be made shorter or longer.
• If a person working in a decision point of a system is responding to delayed information, or responds with a delay, the decision will be off target. Actions will be too much or too little to achieve the decision maker’s goals.
• On the other hand, if action is taken too fast, it could magnify short-term variation and create unwanted instability.
• Delays determine how fast systems can react, how accurately they hit their targets, and how timely the information is passed around a system. Overshoots, fluctuations, and collapses are caused by delays.

This is part eleven of the summary of Thinking in Systems by Donella Meadows. If you’d like to review, here are parts one, two, three, four, five, six, seven, eight, nine, and ten of the summary.

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