The Spaghetti Inventory Problem

The Spaghetti Inventory Problem                                            Previous

The following example demonstrates these three principles.  A spaghetti manufacturer found that their retailers were overstocked with spaghetti. To reduce stock, they had a “buy one, get one free” promotion, which cleared the excess stock. The production department, seeing what they interpreted as an increase in demand, increased production. Their increased production flowed to the retailers at a time when households were still eating their way through the “two for one” offer. The “story” for this loop starts begins with Sales. As Sales increase Spaghetti Stocks at home increase but this has the effect of decreasing future sales and increasing the Spaghetti Stocks in store. This situation is exacerbated by the impact (discounted) Sales have on Forecast of Sales and Production.

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