Business Dynamics and System Modeling

Chapter 11: Delays

Pard Teekasap
Southern New Hampshire University
 Outline
1. Definition of the Delays
2. Material Delays
3. Information Delays
4. Variable Delay Time
5. Estimate the Delays
 Pre-class Question
• Consider the market for agricultural
commodities such as pork. What is the
average delay between a rise in the price of
pork and the resulting increase in pork
supply?
• If there is an unanticipated increase in the
inflation rate, how long will it take for the
forecasts of the experts to adjust to the new
rate?
 Define the Delays
• A delay is a process whose output lags behind its
input in some fashion
• Since the input differs from output, there must
be a stock inside the process to accumulate the
differences
• Material delay = a delay process of the physical
flow of material
• Information delay = the gradual adjustment of
perception or beliefs
Delays have stocks
 Material Delays
• In many cases, the outflows are constrained by
limited resources. These resources must be
modeled explicitly
• The important aspects of delays
– What is the average length of the delay?
– What is the distribution of the output around the
average delay time?
What is the average length of the delay?

• How long, on average, does it take items to

flow through the delay?
• What is the average residence time for a unit
in the delay?
 What is the distribution of the output?
200
Inflow Outflow A
% of Unit Pulse/Time Period

150

D
100
B

50
C

0
0 1 2 3
Time (multiples of average delay time)
A = Pipeline delay; B = First-order delay;
C = Third-order delay; D = Twelfth-order delay
 Pipeline Delay
• Also known as transportation lag
• The delay time is constant
• The order of exit from the delay is precisely
the same as the order of entry
• E.g. Auto assembly line
• Outflow(t) = Inflow(t-D)
Structure of Pipeline Delay
 First-Order Material Delay
• There is mixing and variation in the individual
processing times, causing some variance in the
distribution of delivery
• Perfect mixing = the order of entry is ignored
• Outflow = Material in Transit/D
Structure of First-order Material Delay
 Behavior of First-order Material Delay
Delay Inflow and Outflow
100
% of Unit Pulse/Time Period

75

50
Inflow Outflow

25

0
0 1 2 3
Time (multiples of average delay time)
Stock of Material in Transit
100
(% of pulse quantity)

75
Material in Transit

Material in Transit

50

25

0
0 1 2 3
Time (multiples of average delay time)
 Higher-order Material Delay
• The delay consists of multiple stages of
processing in which items flow sequentially
from one stage to the next, but where each
stage introduces some mixing
• The same as cascading first-order delays
together
Structure of Higher-order Delay
 Nth-order Material Delay
• A delay with n stages, each with 1/n of the
total delay time
• The higher the order of the delay, the less
mixing and the smaller the variance of the
output
• An infinite-order delay preserves the order of
entry and permits no mixing = pipeline delay
 Pulse response of a 3rd-order delay
Delay Inflow and Outflow
100
% of Unit Pulse/Time Period

75

50
Inflow Outflow

25

0
0 1 2 3
Time (multiples of average delay time) Stock of Material in Transit
100
(% of pulse quantity)

75
Material in Transit

50

25

0
0 1 2 3
Time (multiples of average delay time)
 Pulse response of 3rd-order delay by stage
Delay Inflow and Outflow
300
Stage 1
Exit Rate

200

Stage 2
Inflow
Exit Rate
100
Outflow

0
0 1 2 3
Time (multiples of average delay time) Stock of Material in Transit
100

Total Stock in Transit

75

Stage 1
50

Stage 2
25

Stage 3
0
0 1 2 3
Time (multiples of average delay time)
 Little’s Law
• How big will the stock in transit be for any
given delay and inflow, suppose the inflow has
been constant long enough for the delay to
reach equilibrium?
• The equilibrium stock in transit for a delay is
always DI units, regardless of the probability
distribution of the outflow
 Information Delays
• Why do perceptions and forecasts involve
delays?
• It takes time to gather the information needed
to form judgments
• People don’t change their mind immediately
on the receipt of new information
• Need time to adjust emotionally to a new
situation
 Adaptive expectation
• Also known as Exponential smoothing
• Simplest information delay and one of the
most widely used
• The belief gradually adjusts to the actual value
of the variable
• It’s also known as a first-order information
delay or first-order exponential smoothing
Structure of adaptive expectation
 Response of adaptive expectations to a step
change
200
Perceived and Actual Values

Input:
Actual Value
Output:
Perceived Value
(units)

150

100
0 1 2 3
Time (multiples of average delay time)
100

75
Units/Time Period

50
Change in Perceived Value

25

0
0 1 2 3
Time (multiples of average delay time)
 Adaptive expectation eliminate short-term
noise
1500
Order Rate

1250
Units/Day

1000

750 Expected
Order Rate

500
0 50 100 150 200 250 300
Days
 Higher-order information delays
• In a first-order information delay, the output
responds immediately to a change in the input
• In many cases, beliefs begin to respond after
some time has passed
• The delay between the actual state and the
decisions involves multiple stages
• Similar to the higher-order material delay, we
cascade first-order smoothing structures
Structure of the 3rd-order info delay
 Response of higher-order delays to a step
input
200
Perceived and Actual Values

Input:
Actual Value Output:
Perceived Value
1st
(units)

Order
150

3rd
Order
12th
Order
100
0 1 2 3
Time (multiples of average delay time)
 Variable Delay Time
• In many cases, the delay time is not fixed. It can
varies both exogenously and endogenously
• If you’re the only one at the ATM, you can get a
cash by about a minute
• However, the delay time to get cash increases if
there are people ahead of you
• The rate at which people joint the line also
depends on how many people are in line
 Ratchet Effects
• People moves with positive things faster than
negative things
• Aggregate consumption expenditures rise
faster than they fell as income fluctuated over
the business cycle
• People perceive job insecurity quickly and
have a long memory of that
 Nonlinear time constant in job insecurity

Memory of
Layoffs
Change in
Layoff
Memory
0.10
(fraction of workforce/week)

+ - -
Layoff
Rate Memory
Adjustment
Layoff Rate

Time
- + + +
0.05 Memory of
Layoffs DI DD

Layoff
Rate

0.00
0 20 40 60 80 100
Weeks
 Estimating delays from data
• Econometric techniques can be used for
estimating lags from time series include the
Koyck or geometric lag, polynomial distributed
lags, rational distributed lags. And ARIMA
model
• You need to trade off the flexibility of the
formulation against the number of parameters
to be estimated in choosing the method
 Don’t put the regression equation in the
model
• You should replace the estimated distributed
lag with the material or information delay that
best matches the estimated lag because
– Econometric techniques are for discrete time, but
system dynamics are for continuous time
– The delay time may be incorporated as an
endogenous variable
– Regression equations do not distinguish between
material and information delays
Estimation the lagged response of natural gas
supply (3rd-order)
 Construction lag for capital plant (2nd-order)
5
2nd Order Delay
4
% of Unit Pulse/Month

Survey
3 Data

1
Mean Delay
(16.7 months)
0
0 12 24 36 48
Month
 Estimating delays when no available data

• You must estimate these parameters from

direct inspection of the delay process,
experience with analogous delays in related
systems, or judgment
• Judgmental estimation is quite unreliable and
usually underestimate the duration
• The longer the delay, the greater the degree of
underestimation
 Decompose the process
• Decompose the process into various stages,
then estimate the length of time required of
each stage
• The more stages in delay, the tighter the
output distribution will be and the smaller the
initial response
 Walk the Line
• Even when numerical data are available, direct
inspection is important
• You should be suspicious of data and take the
time to investigate the process firsthand