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    System Dynamics (Simulation)

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    Because of the marketing policy where marketing expenditure is 2.5% of the average sales income, incoming orders fluctuate creating labour problems and increasing cost. The product is highly sensitive and responsive to advertising and promotion activities hence great emphasis is given to it. There is an 8 months delay in getting the products to the customers and 4mths for the marketing activities to take effect.

    How should I revise the model to create a much more stable system which is more effective in a growth situation. Should I fixed the marketing expenditure or what else can I do? Pls help! Thanks!

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    Solution Preview

    Revision of the model to create a more stable system that is more effective in growth:
    1. Since the marketing expenditure is only 2.5% of the sales, then the marketing expenditures should not come immediately after sales income, this is the cause uneven expenditure and the fluctiation in sales. The marketing expenditure should be financed from the working capital of the company. This will ensure that there is even spending of the marketing expenditure and the fluctuation in sales because of the unevenness in marketing expenditure will be removed.
    2. There is an eight month delay in getting the production ready and to the market. For, this based on the marketing expenditure plan, the demand for the entire year needs to be forecasted and the forecasted sales figures need to be used to make the production plan. This will ensure that there are no abrupt spurts of production.
    3. The eight-month delay in production also means that there should be an inventory of ...

    Solution Summary

    The system dynamics in simulations are determined. The marketing expenditures models are analyzed.