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Increase Profit Causal Loop document sample
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Gloucester Community
Development Corporation
1
Challenges
• “You cannot build a model without a good
understanding of the system you are going to
simulate…”
Jim Hines 2002
2
Purpose of Today’s Presentation
• Share some insights in using SD for client projects
• Ask you for a peer-group review, i.e. which part
of the following presentation could lead into a
publishable paper?
3
The Team
Our Client:
Dr. Carmine Gorga, Executive Director GCDC
Dr. Steve Kelleher, Marine Institute Massachusetts
Dr. Damon Cummings, a former Professor of hydrodynamics
and control theory at MIT
Joe Sinagra, Fishermen
MIT:
Jeroen Struben, PhD Student MIT
SangHyun Lee, M.S Student Intelligent Engineering MIT
Peter Otto, PhD Student UAlbany
4
Agenda
• Introduction to the Project
• A Step-by-step approach towards a model
– Decomposition of the system
– Reflection of current situation and Problem Definition
– Key Variables
• Scope and understanding
– Dynamic Hypotheses
– Overview on the different Sectors
• Model initiation: building one Dynamic hypothesis
– Model Components
– Base model Behavior
5
Gloucester’s Business Goal
To establish a commercialized fisheries operation Gloucester
Fish, Inc. that utilizes a novel process that extracts fairly
pure protein from underutilized fish species to potentially
increase their value in an effort to revitalize the present
fishing industry in Gloucester.
6
Surimi?
A substitute for crab meat….
7
Surimi Market
• Total market: 760,000 metric tons, growing at 10 – 20%
per year
• Japan represents 60 % of the market
• Desired output for Gloucester’s surimi factory is 10,000
metric tons
8
Phase 1: Learning
Demand Fishing fleet Launch and operate
• Potential market-size • # Fishermen • Desired capacity
• Product attractiveness • # boats needed for Surimi • Startup costs
• Unit price • Total # boats • Total Capacity
• Attractiveness of other fishing • Extendibility
targets • Marketing efforts
Product characteristics • Total fishing capacity • Total labor provision
• Marketability • Willingness to join • FDA approval time
• Product quality (grade) • Earnings per Fisherman • Total Sales
• Product diversity • Area utilization • Diversification
• Unit costs • Effectiveness • Profitability
• Total catch
Finance and Community,..
Competition • Cost per trip
• Total value added
• Barriers to entry • Equipment extension cost
• Directional
• Number of competing • Private investor fraction
ports Resources
• Risk of disintegration
• Total competing capacity • Water availability
• Employee involvement
• Accessibility of cross • Water costs per unit
waters • Reinvestment fraction
• Water pollution
• Government taxes
• Perceived fish stocks
• Community acceptance
• Actual fish stocks
• Sustainable Yield
• Community concerns
9
Phase 2: Reflection
• Meeting with client to confirm problem statement and
initial reference modes
10
Problem Statement
“Objective”
• The decline of traditional fish species and the curtailing of
fishing efforts by the Government require the fishing
industry of Gloucester to identify alternative resources to
sustain their industry…
…A Surimi factory – harvesting fast renewable fish stock –
should compensate for the missing revenues from
traditional white fish until their stock returns to a
sustainable level…
11
Problem recognition
… a response to a downward spiral…
• Dynamics of “Total Potential for harvesting” is defined by the
combined availability of and capacity for dark and white fish
Total Revenues
Revenues from
White Fish
Revenues from
Surimi
1996 2002 2005 2012 t
12
Problem Statement
• Sustainability of Community depends on total revenues, stability,
spread of revenues
Community QoL
H: Enough renewable resources
(both white and dark)
• Reinvestment in plant
• Rising stability reinforces happiness
F1: Too much success
• Increasing revenues,
• Increasing competition,
• Stock depletion,
•Unequal/unfair profits
F2: Lack of throughput
• No Market
1992 2002 2012 t • Delays in takeoff
• Competition from other communities or
• Fish stock takes longer to renew
13
Key Variables
Operations Sector Community Sector
Potential Factory Output Revenues from Fishing
Potential Demand Sustainability of community
Potential Return on Attractiveness to Join
Investment Co-operation
Resource Sector
Fleet Composition
Total allowable Catch (TAC)
# Fleet Days at Sea
14
Phase 3: Agreement
• Presentation of dynamic hypothesis
• Definition for the scope of the project
15
Dynamic Hypothesis
• Potential Factory output: The potential factory output should be
determined by the availability of fish stock. Pushing the system based
on the attractiveness will finally limit the factory output.
Potential factory
+ output +
Potential factory Desired factory
output output Reinv est in factory
+
+ -
Fishing rate Rev enues from
large boats Rege nera tion time
factory
of fish stock
- + R +
B
Large boats in Attracti veness
Total catc h Acctual factory
harbor Li mi tati on thro ugh drives o utput
natural co nstra ints output
+
+ +
t Av ailable fish stock
Fleet days at sea - Attractiv eness
+ for pelagic
+
Perceiv ed fish
stock
16
Dynamic Hypothesis
• Revenues per boat: If operating profit of the factory is positive, it can
reinvest in equipment and processing capabilities to increase
attractiveness and effectiveness, which could cause too much pressure
on the fish stocks.
Revenues Curtailing from
Pressure on s tock
per boat gov e rnment
- -
+ Rev enues per B +
Operating R Rev enues per
large boat
small boat +
profit Pressure on fish stock
Influence from
+ + gov ernment
+ Total re v enues Rege nera tion time
R Effec tiv eness of of fish stock
Av ailable stock
large boats
R
- Attractiveness +
Attractiv eness for + +
Effectiveness
in-shore fish +
Operating profit
Pressure on
t + fish stock
+
Fraction to reinv est in
Processing
capabilities for in + equipment and factory
shore-fish c atch
17
Dynamic Hypothesis
• Revenues from fishing: Revenues can go up and remain high at
sufficient re-investment in the plant, in order to maintain diversity in
input and output. External partners might lead to high volume low
quality through put Potential
+ Local Surimi
Surimi
Market Demand
Total Revenues R3
+
from fishing B3/R5*) Diversificat ion
R4 Attractiveness Dark Fish
for Surimi + Surimi
Catc h Supply
Byproducts + +
B1 +
+
Surimi
Attractiveness
for Dark Fish Troughput
R1-3
+
B2 R4
Capacity Expansion Drift +
1992 2002 2012 t +
Revenues from
Revenues Surimi Plant
-
per Partner
+
B1
Decreasing
Joining Marginal
Partners Revenues
+
+
Attractiveness 18
to Join FI
Dynamic Hypothesis
• Sustainability of Community: Too much success of the plant, can bring
some revenues, while many have to fish for the low-stock white fish
+
Changeovers to
R2 + Dark Fish
Financial
Entranc
Barrier Inequalit y
Community B2 R1 +
QoL B1 - Dark Fish
Attractiveness Dark Fish
- Catc h
+ Increasin g Scale
B1 +
Surimi + Surimi
B1 Revenues
White Fishermen Throughput
R1 Revenues Dark and White
R2 + Balance -
White Fish White Fish
1992 2002 2012 t Catc h
Yield +
White Fish - +
Stoc ks
B2
Deplet ion
19
Phase 4: Conceptualizing the model
• First draft was presented to the client to:
– Confirm the causal loop diagram
– Focus on sensitive variables and parameters
– Re-define scope of the model
20
The Dynamic Hypotheses around the key
variables have been merged into three sectors
• Resource Sector
• Community Sector
• Operations Sector
Variables and links in Dynamic hypotheses themselves,
generally cover more sectors!!
21
Resource Sector
Curtailing from
gov e rnment +
- + Operating profit
Total
B3
+
allow able
catch
Rege neration time
Desired factory
Rege neration time w hite fish +
+ pelagic stock Fraction to
output
Av ailable w hite fish - reinv est in factory
stock (quota) + -
+
Potential factory
- + Av ailable pelagic output R1 +
Fishing rate w hite stock (quota)
- + - Effec tiv eness of
fish (da ys at sea) + Fishing rate Pelagic fish pelagic boats
(days at se a) stock
B2 +
B1 - Processing
capabilities for
B5 + + in-shore fish catch
Pressure on
+ Attractiv eness pelagic stock
w hite fish + + -
# Large # Large Total catch
boats fishing + - boats fishing pelagic
w hite fish pelagic + +
- White fish Attractiv eness for
- stock in-shore fish
B4 -
Catch per -
pelagic boat
+
+ Catch per boat
- + Number of
Attractiv eness of
Total catch small boats
pelagic stock
w hite fish B6
- +
+ Pressure on w hite Total catch from
+ fish stock + small boats
22
Community Sector Diversification
Reinvestment to +
Incubator
+
+
Job Value +
Attractiveness Provis ion Local Surimi
for Surimi Added
R Demand
Byproducts
+ + Plant
Capacity
+ +
Total Operation +
+ Partners Costs
Desired
Capacity
+ - +
External -
Attractiveness to + Revenues per
Join + +
Partner
Revenues from
- Surimi Plant
Co-operatio + +
B - + Surimi
n Fishermen Revenues per R
+ Troughput
Co-operation
- Fisherman
+ +
Relative + +
+ Surimi
Attractiveness For Fishermen
+
Fishermen to Join Revenues
Entrance
Financial Barrier Investment
to Join + +
- +
+ Boat Pelagic
- - Co-operation Effec tiveness + Attractiveness
Boat + Partners
Financial Barrier - Changeover
to Adapt Boat Revenues Costs
per Private
Fisherman R +
R + Pelagic
- + +
Catc h
-
Private
- - -
Fishermen +
- Pelagic
Boat Private White White Fish
+ Co-operation Stoc ks
Effec tiveness Fish Catch Stoc ks
Individuals Fishermen White
Fish Catch -
+ +
+
+
White Fish
23
Yield
Operations Sector
White fi sh
attracti veness
+
Chan geover to - +
pel acig fi sh Fi shi ng rate for +
+ Resource suppl y whi te fish
+ Revenu es from
+ whi te fish
+ + +
Pel agi c fish Pel agi c fish ca tch Processi ng
White fi sh catch
attracti veness + capabi li ti es for
+ + i n-shore fish catch
+ + Actual factory output
Desi red fa ctory + +
Pel agi c fish stock
output Actual demand
+
- + + +
Factory
Pressure on
revenues
pel agic fi sh + + +
+ Rei nvest in fishing
+ Rei nvest to product equi pment
Fi shi ng rate pelagi c Potential de mand
+
+
Product
Potential facto ry attravti veness +
output
+ Rei nvestment i n
factory
+
Factory capacity
+
+
Potential return on +
i nvestment - Op erating cost
Effectiven ess of
l arge boats
24
We have used the “Potential Factory Output”
hypothesis as a starting point for the model
The model of the hypothesis is built up of three main loops:
• Factory Capacity and Output
• Fleet Capacity
• Resource Dynamics
Other hypotheses will be constructed on top of this
25
Dynamic Hypothesis
• Potential Factory output: The potential factory output should be
determined by the availability of fish stock. Pushing the system based
on the attractiveness will finally limit the factory output.
Potential factory
+ output +
Potential factory Desired factory
output output Reinv est in factory
+
+ -
Fishing rate Rev enues from
large boats Rege nera tion time
factory
of fish stock
- + R +
B
Large boats in Attracti veness
Total catc h Acctual factory
harbor Li mi tati on thro ugh drives o utput
natural co nstra ints output
+
+ +
t Av ailable fish stock
Fleet days at sea - Attractiv eness
+ for pelagic
+
Perceiv ed fish
stock
26
Reinvestment
Frac tion
Reinvestment in
Factory
+
Reinvestmen
t Funds
+
Reinvestment Factory Revenues
Rate
Capacity Growth per - +
Invested Dollar -
+ +
+
+ Funded
Desired Surimi
Capacity
Production Capacity
+
+
Capacity
Shortage +
- B Production Surimi
Surimi Sales +
Capacity
Demand +
Growth
Factory R
Surimi
Capacity
Time To Increasin g Surimi Pric e
Expand Ret urns t o Scale
per Unit
+
Maximum Surimi Actual Factory
Factory Output Output
+
Surimi
+
Production
+
27
Reinvestment
Frac tion
Reinvestment in
Factory +
Reinvestmen
t Funds
+ Factory
Reinvestment
Rate Revenues
Capacity Growth per -
Invested Dollar - +
+ +
+
+ Funded
Desired Surimi
Capacity
Production Capacity
Surimi
+ Sales +
+
Capacity +
Shortage +
B Production
Surimi -
Demand Capacity
Growth Surimi Pric e
+ Factory per Unit
R
Surimi
Capacity
Actual Factory
Time To Increasing Output
Demand Expand Ret urns t o Scale
Multiplier +
+
+
Maximum Surimi
Factory Output
+ Surimi
Production
+
+
Actual Boat Size of Pelagis Pelagic Need per
Efficiency Fleet Year
R
+ +
Th roughput
Pelagic Capacity + Matching Capacit y
per Year Pelagic
Required
+ Harvest
Capacity
Utilization Rate
+
Working Days p +
Year Actual Capac ity
+
Allowed Boat Utilization Pelagic Fleet
Maximum Days Utilization + + Capacity at Sea
per Year +
28
Reinvestment
Frac tion
Reinvestment in
Factory +
Reinvestmen
t Funds
+ Factory
Reinvestment
Rate Revenues
Capacity Growth per -
Invested Dollar - +
+ +
+
+ Funded
Desired Surimi
Capacity
Production Capacity
Surimi
+ Sales +
+
Capacity +
Shortage +
B Production
Surimi -
Demand Capacity
Growth Surimi Pric e
+ Factory per Unit
R
Surimi
Capacity
Actual Factory
Time To Increasing Output
Demand Expand Ret urns t o Scale +
Multiplier
+
+
Maximum Surimi
Factory Output
+ Surimi
Production
+ +
+ Frac tional
Actual Boat Size of Pelagis Pelagic Need per Pelagic
Efficiency Fleet Death Rate
Year Natural
Deaths B +
R +
+ + Available
Th roughput Pelagic + Relative
Pelagic Capacity + Matching Capacit y
Stoc k
per Year Density
Pelagic
Required +
+ Capacity Harvest
Utilization Rate B
Pelagic
+
+ + Births +
Working Days p
Year + Actual Capac ity + Frac tional
Allowed Boat Utilization Pelagic Fleet Birth Rate
Maximum Days Utilization + + Capacity at Sea B
per Year +
Yield + 29
Basic model Behavior
1. Basic Demand
– Step demand increase towards 15000 Surimi in the
10th month
2. Resource Depletion
– Same case, with a lower fertility of pelagis
30
Basic Demand: Factory Capacity
Capacity Utilization
20,000 MTO/Year
600 MTO/(Year*Month)
8M $
15,000 MTO/Year
450 MTO/(Year*Month)
6M $
10,000 MTO/Year
300 MTO/(Year*Month)
4M $
5,000 MTO/Year
150 MTO/(Year*Month)
2M $
0 MTO/Year
0 MTO/(Year*Month)
0 $
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120
Time (Month)
Surimi Demand : BaseDemand MTO/Year
Factory Surimi Capacity : BaseDemand MTO/Year
Capacity Shortage : BaseDemand MTO/Year
Funded Capacity : BaseDemand MTO/Year
Production Capacity Growth : BaseDemand MTO/(Year*Month)
Reinvestment Funds : BaseDemand $
31
Basic Demand: Pelagic Throughput
Pelagic Throughput
20,000 MTO/Year
20 M $/Year
15,000 MTO/Year
15 M $/Year
10,000 MTO/Year
10 M $/Year
5,000 MTO/Year
5 M $/Year
0 MTO/Year
0 $/Year
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120
Time (Month)
Surimi Demand : BaseDemand MTO/Year
Pelagic Fleet Capacity at Sea : BaseDemand MTO/Year
Pelagic Harvest Rate : BaseDemand MTO/Year
Surimi Production : BaseDemand MTO/Year
Surimi Sales : BaseDemand $/Year
32
Basic Demand: Resource Dynamics
Pelagic Resource Control
4,000 MTO/Month
800,000 MTO
2 Dmnl
3,000 MTO/Month
700,000 MTO
1.75 Dmnl
2,000 MTO/Month
600,000 MTO
1.5 Dmnl
1,000 MTO/Month
500,000 MTO
1.25 Dmnl
0 MTO/Month
400,000 MTO
1 Dmnl
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120
Time (Month)
Pelagic Harvest Rate : BaseDemand MTO/Month
Available Pelagic Stock : BaseDemand MTO
Relative Density : BaseDemand Dmnl
33
Lower Resource Fertility: Resource Depletion
Pelagic Resource Control
4,000 MTO/Month
600,000 MTO
2 Dmnl
3,000 MTO/Month
450,000 MTO
1.5 Dmnl
2,000 MTO/Month
300,000 MTO
1 Dmnl
1,000 MTO/Month
150,000 MTO
0.5 Dmnl
0 MTO/Month
0 MTO
0 Dmnl
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228 240
Time (Month)
Pelagic Harvest Rate : LowBirthRate MTO/Month
Available Pelagic Stock : LowBirthRate MTO
Relative Density : LowBirthRate Dmnl
Dynamics can be very sensitive to resource parameters
34
Learning’s along the way
Insights Comments / Issues
• A clear problem statement can act • A clear, true problem statement is
itself as true insight crucial. This implies effective kick-
off meeting(s) and being in the
• Quote:“Opportunities for inshore
driver-seat
fishing?!”
• Early involvement of true-
• Quote: “Looking ahead to stakeholders / knowledge experts is
understand potential pitfalls has crucial for a good (mental) model
never been done before” • Using reference modes and causal
• Quote: “Visualizing the connections loop diagrams makes it much easier
between the variables helped us to for the client to understand the
better understand the dynamics in problems and dynamics
the system”
35
Your Task
• Which part of this project would be of interest for
a broader SD community, i.e. do you think we
could hit a placement in the SD Review?
36
