Religious-pilgrimage system

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LECTURE 2.2 WEEK 4 27 SEPTEMBER 2020 KFSC, FALL 2020

Administration

1.  Homework for Week 4 is due on 9:00PM Saturday 3 October

2.  Quiz 1 covering Weeks 1 and 3 will be given at the end of Class 2 this week.

3.  Those of you who had Mr. Haro as an instructor in Class 2 and 3, will now have Dr.

Tony Attwood.

4.  Mr. Paul will continue serving as the instructor for this other sections.

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OVERVIEW

1.  Introduction to Networks: Supply-Chain and Demand-Chain

2.  Very useful to analyzing the vulnerabilities of assets next week

3.  Requires a review of basic business-economic concepts

4.  Helps promote your system-thinking skills

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Business Economics Review

Business Profit = Total Revenue – Total Cost

Total Revenue = Sales Price ($/product sold) x Sales Rate (product sold/time) x Product Life

Cycle (time)

Total Variable Cost = Average Variable Cost ($/product made) x Production Rate (product

made/time) x Product Life Cycle (time)

Total Cost = Total Variable Cost + Advertising Investment + Production Investment

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Variables

Variables: Profit = π

Sales Price = S

Sales Rate = qs

Product Life Cycle = T

Average Variable Cost (Direct cost of making one product) = AVC

Production Rate = qp

Advertising Investment = A

Production Investment = P

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Profit Equation

Profit = π = Total Revenue – Total Cost = S qs T – [AVC qp T + A + P]

π = S qs T – A - [AVC qp T + P]

Let Net Revenue = S qs T – A

Let Total Production Cost = C qp T + P

Then Profit = π = Net Revenue – Total Production Cost

Relationship between Revenue, Cost and Investment?

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Total Variable Production Function

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TVC(q, P3)

q

$

TVC(q, P2)

TVC(q, P1)

Where P1 < P2 < P3 Why? Because greater investment permits More efficient production machinery to be purchased

Total Revenue Function

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TR(q, A1)

q

$

TR(q, A2)

TR(q, A3)

Where A1 < A2 < A3 Why? Because greater spending on advertising exposes more people to convincing sales arguments.

Two Basic Business Investment Strategies

Supply Chain Strategy: Set up individual companies to produce individual components

of your product more efficiently that you can, which you assemble in your factory for

the lowest possible total production cost: production investment.

Distribution Chain Strategy: Set up individual companies to distribute and sell your

product to provide customers with more convenient purchasing experience, in order to

secure the highest possible revenue: advertising investment.

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Pizza Production: Ingredients/ Components

1.  Wheat – Flour – Dough 2.  Cows – Milk – Cheese 3.  Vegetables – Cleaned – Sliced

4.  Olives – Olive Oil 5.  Cows – Meat – Sausages – Pepperoni Slices

6.  Wood – Paper – Cardboard – Pizza Boxes 7.  Basil and Oregano Plants – Dried Leaves – Ground Spices

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Pizza Assembly of Ingredients versus Distribution to Customers

Supply Chain: Production and Delivery of Pizza ingredients/components

Distribution Chain: Delivery of Assembled Pizzas to Paying Consumers

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l

Raw material

Sub- components Components System (product)

Supply-Chain Network

Nodes Links

Manufacturer Wholesaler Retail Stores Consumers

Distribution Network