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Simulation Modeling: © 2007 Pearson Education

Simulation

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408 views

Simulation Modeling: © 2007 Pearson Education

Simulation

Uploaded by

mushtaque61
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 10: Simulation Modeling

2007 Pearson Education

Simulation
To simulate is to try to duplicate the characteristics of a real system We will study mathematical simulation models of real systems to help make business decisions Simulation is one of the most widely used decision modeling techniques

The Process of Simulation

Advantages of Simulation
1. 2. 3. 4. 5. Flexibility Can handle large and complex systems Can answer what-if questions Does not interfere with the real system Allows study of interaction among variables 6. Time compression is possible 7. Handles complications that other methods cant

Disadvantages of Simulation
1. Can be expensive and time consuming 2. Does not generate optimal solutions 3. Managers must choose solutions they want to try (what-if scenarios) 4. Each model is unique

Monte Carlo Simulation

Can be used with variables that are probabilistic Steps:


1. Determine the probability distribution for each random variable 2. Use random numbers to generate random values 3. Repeat for some number of replications

Random Variables (RVs)


There are many random variables in real life where there is uncertainty, such as: Product demand Lead time for orders Time between equipment breakdown Service time Etc.

Step 1: Determine the Probability Distribution for Each RV


There are many different probability distributions (e.g. general discrete, normal, Poisson, uniform, exponential, binomial, etc.) Usually use historical data to determine which distribution fits best

Harrys Auto Shop Example


Want to simulate monthly demand for tires Have data on past 60 months

Step 2: Use Random Numbers to Generate Random Values


Random numbers are where all values are equally likely Rolling a single die generates random numbers between 1 and 6 Using two-digit random numbers (00 to 99) the probability of each is 1/100 or 0.01 Random numbers can be come from a computer, a table, a roulette wheel, etc.

Random Number Intervals for Harrys Auto Shop

Step 3: Replication of the Simulation


Repeatedly draw a random number and determine the demand for a particular month A simulation must be replicated (or repeated) many times to cover the full range of variability and obtain meaningful results

Role of Computers in Simulation


The Harrys example was done by hand Computers are much faster Software packages have built-in procedures for a variety of probability distributions Replications are kept track of

Simulation Software Packages


General purpose languages
(Visual Basic, C++, Fortran, etc.)

Special purpose languages and programs


(GPSS, Simscript, Microsaint, BuildSim, etc.)

Spreadsheet models

Generating Random Values in Excel


To generate random numbers between 0 and 1, use: = RAND() Using this with various formulas allows generating RVs from a variety of distributions, including normal, uniform, exponential, and general discrete
Go to Excel

Return to Harrys Auto Shop


Want to compute expected profit Revenue per tire varies with market conditions
Discrete uniform distribution $60 to $80

Profit margin per tire also varies


Continuous uniform distribution, 20% to 30%

Fixed operating cost is $2000 per month

Flowchart for Harrys Simulation

Go to file 10-2.xls

Replicating the Model


If model is small it could be copied multiple times Using a Data Table for replication is convenient for larger models For each value (run number) in the data table, the model is run and the result reported
Go to file 10-2.xls

Example Inventory Simulation Simkins Hardware Store


Selling electric drills Decisions
1. How many drills to order? 2. When to order more drills?

Random Variables
Daily demand Lead time (time from order placement until order received)

Simkins Inventory Objectives


1. Avoid stockouts (because customer will buy at another store) 2. Keep inventory levels low 3. Avoid ordering too frequently These objectives conflict Costs are associated with each, so total cost can be calculated

Components of Total Cost


Type of Cost
Stockout (lost sale) cost Holding (inventory) cost Order cost

Cost
$8 per drill $0.02 per drill per day $20 per order

Want to find the inventory policy that minimizes total cost

Inventory Policy
Inventory policy decision variables (Q, R) Q = the number of drills to order R = the reorder point (if inventory < R, an order is placed) We can try what-if (Q, R) combinations to look for the lowest cost policy

Probability Distribution of Daily Drill Demand

Probability distribution of lead time: Uniform from 1 to 3 days

Simulation Model
Simulate 25 days of operation Start day 1 with 7 drills in inventory Generate random demand each day Demand filled = Minimum of inventory and demand If demand > inventory, then stockout(s) occur

Simulation Model
Track inventory level
Reduced when drills are sold Increased when orders arrive

Place an order for Q drills if the days ending inventory < R Each time an order is placed, generate a random value for lead time Calculate all 3 types of cost and sum for total cost
Go to file 10-3.xls

Replication Using Data Table


Can record all 4 costs (holding, stockout, order, and total cost) for each replication Each replication represents one month (25 days) of operation Generate 200 replications
Go to file 10-3.xls

Using Scenario Manager to Include Decisions in Simulation


Decision variables for Simkin (Q, R) Try Q values 8, 10, 12, and 14 Try R values of 5 and 8 Excels Scenario Manager can automatically run all 8 combinations of Q and R
Go to file 10-3.xls

Example Queuing Simulation Denton Savings Bank


Banks customers arrive randomly and have random service times Customer satisfaction criteria:
1. Average waiting time < 2 minutes 2. Average queue length < 2 customers

Simulate bank operation to determine if criteria are met

Simulation Issues
Need to use discrete event simulation to keep track of clock time Assume one teller Start clock at time 0 Simulate arrival of 150 customers

Values to Track for Each Customer


Time since the previous arrival (random) Arrival time (clock time) Start service time (clock time) Service time (random) End service time (clock time) Waiting time (duration) Queue length (including current customer)

Service Time and Time Between Arrivals Distributions

Go to File 10-4.xls

Revenue Management Simulation


Revenue management is often used in the airline and hotel industries Customer demand is uncertain There is usually some probability that customers with reservations are noshows Capacity is usually fixed

Judiths Airport Limousine Service


Considering offering transportation to/from airport (50 miles away) Average daily demand is 45 people Would make 4 one-way trips per day Van capacity is 10 passengers Judiths operating cost is $100 per trip All trips will be made even if the van is empty

Passengers With Reservations


Reservations require a $10 nonrefundable deposit Reservation ticket price is $35 Reservation demand per trip follows discrete uniform distribution from 7 to 14 20% of people with reservations do not show up If more than 10 show up, Judith must pay $75 for alternate arrangements (i.e. loss of $75 $35 = $40)

Walk-up Passengers
Walk-up demand follows a general discrete distribution Demand Probability 0 0.30 1 0.45 2 0.25 Walk-up passengers pay $50 per trip

Decision Variable:
How many reservations to accept? (Want to evaluate 10 to 14) Objective: Maximize average profit per trip
Go go file 10-5.xls

Simulation With Crystal Ball


Crystal Ball is an add-in for Excel created by Decisioneering Inc. Included on the texts CD-ROM Makes simulation in Excel easier
1. Has built-in probability functions 2. Have built-in replication procedures 3. Make it easier to collect and display information

Using Crystal Ball


Install from the CD-ROM Start Crystal Ball You will be in Excel but an additional menu bar will appear for Crystal Ball

Primary Crystal Ball Menu Options


Define Assumption for specifying the probability distribution for each random variable Define Forecast specifies which cell(s) to collect data on Run Preferences specifies number of replications Start Simulation runs the simulation

Simkins Hardware Store With Crystal Ball


Revisit Simkins inventory problem for selling drills Want to evaluate:
Q (order quantity) values of 8, 10, 12, and 14 R (reorder point) values of 5 and 8

Simkins Hardware Store With Crystal Ball


Use the custom distribution for daily demand Collect data on (Define Forecast) for: holding cost, stock out cost, order cost, and total cost
Go to file 10-6.xls

Simulation of Revenue Management With Crystal Ball


Revisit Judiths Limousine service Use binomial distribution for number of no-show reservations (p=0.8) Use the custom distribution for number of walk-ups Collect data (Define Forecast) for both profit and occupancy rate
Go to file 10-7.xls

Other Types of Simulation Models


Operational Gaming where there are 2 or more competing players (such as military games or business games) Systems Simulation models the dynamics of a large system (more complex than the Monte Carlo methods we have studied)

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