Dynamic modeling to determine production strategies in order to maximize net present worth in small and medium size companies

Determining production rate considering costs and revenues in order to maximize profit is one of the applied problems in small and medium size factories. Mostly existing models in production planning consider production system statically and specify production rate, although the factors determining production rate include many different changes in practice. In fact, by increasing the production rate or mass production, production costs can be reduced. Costs reduction will result in sales price falling. Then, sales price will affect the demand and demand can increase. Demand increase will lead to more income and this process will repeat again. In this paper, a model will be proposed for production system of small and medium size companies regarding costs, revenues and dynamic reaction of systems against changes, by applying system dynamics and Vensim software. Since Iran is a developing country, the model will be analyzed and validated for a medium size factory and then some policies will be presented to improve the factory situation in the future.