2. Practical questions: System Dynamics (30 Marks) An e-commerce warehouse wants to manage its inventory for an item using system dynamics. The item has sales and procurement rates which are well

known. Warehouse manager believes that system dynamics might help them plan inventory levels. It is very well known that if there is no inventory, there can be no sales. In other words, items are sold from inventory. It is also known that if there is no item procurement, there is no item inventory. Each item first goes into inventory once they arrive. Warehouse manager knows item procurement rate. Item procurement rate positively impacts procurement (i.e. number of items procured). Warehouse manager also knows item sales rate. Sales rate positively impact sales (i.e. number of items sold). The procurement (i.e. number of items produced) is (=procurement rate*inventory level). The sales (i.e. number of items sold) is (-sales rate*inventory level). a) Draw the Causal-loop diagram, put the sign (positive or negative) for the whole model and write equations for variables. (5 Marks). b) Assume that the procurement rate is 0.05 items per month, while sales rate is 0.03 items per month. And warehouse has an initial inventory level of 1000 items. (15 Marks). - Establish complete model on Vensim and report model as screenshot in the report. Run this model on Vensim for 100 months with time step of 0.25. - Discuss results for inventory level and show graphs of results. - What is the probability that inventory level will go below 500 items? - Make recommendations to the warehouse. c) Now assume that the item is a perishable item. If you are asked to solve this problem for a perishable item, what would change in your model and in your parameters? Critically discuss this new setting. (10 Marks).