Lecture Operations management: Creating value along the supply chain (Canadian edition) - Chapter 13S

OPERATIONS MANAGEMENT:
Creating Value Along the Supply Chain,
Canadian Edition
Robert S. Russell, Bernard W. Taylor III, Ignacio Castillo, Navneet Vidyarthi

CHAPTER 13
SUPPLEMENT
Operational Decision-Making Tools:
Simulation

Supplement 13-1


Lecture Outline
—Monte Carlo Simulation
—Computer Simulation with Excel
—Areas of Simulation Application

Supplement 13-2


Simulation
—Mathematical and computer modeling technique

for replicating real-world problem situations
—Modeling approach primarily used to analyze
probabilistic problems

—It does not normally provide a solution; instead it provides

information that is used to make a decision

—Physical simulation
—Space flights, wind tunnels, treadmills for tires
—Mathematical-computerized simulation
—Computer-based replicated models

Supplement 13-3


Monte Carlo Simulation
— Select numbers randomly from a probability

distribution
— Use these values to observe how a model
performs over time
— Random numbers each have an equal likelihood
of being selected at random

Supplement 13-4


Probability Distribution of Demand

LAPTOPS DEMANDED
PER WEEK, x
0
1
2
3
4

FREQUENCY OF
DEMAND

PROBABILITY OF
DEMAND, P(x)

20
40
20
10
10

0.20
0.40
0.20
0.10
0.10

100

1.00

Supplement 13-5


Roulette Wheel of Demand
0
90
x=4

80

x=0
20

x=3

x=2
x=1
60

Supplement 13-6


Generating Demand from
Random Numbers
DEMAND,
x
0
1
2
3
4

RANGES OF RANDOM NUMBERS,
r
0-19
20-59
60-79
80-89

90-99

r = 39

Supplement 13-7


Random Number Table

Supplement 13-8


15 Weeks of Demand
WEEK
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

r
39
73
72
75
37
02
87
98
10
47
93
21
95
97
69

DEMAND (x)

REVENUE (S)

1
2
2
2
1
0
3
4
0

1
4
1
4
4
2

4,300
8,600
8,600
8,600
4,300
0
12,900
17,200
0
4,300
17,200
4,300
17,200
17,200
8,600

= 31

$133,300

Supplement 13-9

Computing Expected Demand
Estimated average demand = 31/15 = 2.07 laptops/week
E(x)

•

•

= (0.20)(0) + (0.40)(1) + (0.20)(2)
+ (0.10)(3) + (0.10)(4)
= 1.5 laptops per week

Difference between 1.5 and 2.07 is due to small number of periods analyzed
(only 15 weeks)
Steady-state result
•
average result which stays constant after enough trials

Supplement 13-10


Random Numbers in Excel

Supplement 13-11


Simulation in Excel
Enter this formula
in G6 and copy to
G7:G20

Enter “=4300*G6”
in H6 can copy to
H7:H20

=AVERAGE(G6:G20)

Generate random
number for cells
F6:F20 with the
formula “=RAND()”
in F6 and copying
to F7:F20

Supplement 13-12


Simulation in Excel

Spreadsheet “frozen”
at row 16 to show
first 10 weeks
and last 6
Supplement 13-13


Decision Making with Simulation
This formula entered in
G7 and copied to
G8:G105
=G6*50 entered into

cell L6 and copied
to L7:L105
=VLOOKUP
(F6,LOOKUP,2)
in H6 and copied
to H7:H105

Shortages computed
by entering
=MIN(G6-H6,0)
in I6 and copying
to I7:I105

Supplement 13-14


Decision Making with Simulation
New formula for two
laptops ordered
per week.

Supplement 13-15


Areas of Simulation Application
—Waiting Lines/Service
—Complex systems for which it is difficult to develop
analytical formulas
—Determine how many registers and servers are needed
to meet customer demand

—Inventory Management
—Traditional models make the assumption that customer
demand is certain
—Simulation is widely used to analyze JIT without having to
implement it physically

Supplement 13-16


Areas of Simulation Application
—Production and Manufacturing Systems
—Production scheduling, production sequencing, assembly
line balancing, plant layout, and plant location analysis
—Machine breakdowns typically occur according to some
probability distributions
—Capital Investment and Budgeting
—Capital budgeting problems require estimates of cash
flows, often resulting from many random variables
—Simulation has been used to generate values of cash
flows, market size, selling price, growth rate, and market
share

Supplement 13-17


Areas of Simulation Application
—Logistics
—Random variables include, distance, transport modes,
shipping rates, and schedules
—Allows analysis of different distribution channels

—Service Operations
—Police departments, fire departments, post offices,
hospitals, court systems, airports
—Complex operations where only simulation can be
employed
—Environmental and Resource Analysis
—Impact of manufacturing plants, waste-disposal facilities,
nuclear power plants, waste and population conditions,
feasibility of alternative energy sources
Supplement 13-18


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