Now the question arises, how are production and sales related. Clearly there is a close relationship, since it is necessary to produce something before it is sold. Sales and production are related in two ways:
Physical: production is required to produce goods to sell
Information: managers base production decisions on current or recent sales
We will start the model with the physical side. When production occurs, goods are not immediately sold. Instead, they are stored in an inventory until a sale occurs, at which point they are removed from inventory. In general, there will be an inventory, or some combination of inventory and backlog, separating production from sales. If a backlog is used in the model, it is useful to consider orders and shipments instead of simply sales. In this model, we will just use an inventory.
We construct Inventory as a Level, then add a rate flowing in and a rate flowing out. Next, we use the variable merge tool to drag our two existing variables, production and sales onto the valves.
It is worth noting at this point that we could have created the same diagram by first entering the level containing Inventory, then adding and naming the two rates. The reason we chose to add Inventory then attach the existing variables as rates was to work through the problem as it came to light, rather than working out the problem first then putting it on the sketch.
