Simulation

Applications in SCM$?$

Typical Steps in Simulation

Consider the example below and let us follow the steps outlined under Process:

Best Buy has the following probability distribution of weekly demand for a particular type of DVD$.$ The time it takes for the

store to receive an order from its distributor is also given.

Demand of

DVDs

Probability Lead Time Probability

$00\mathrm{.}1010\mathrm{.}35$

$10\mathrm{.}1520\mathrm{.}45$

$20\mathrm{.}3030\mathrm{.}20$

$30\mathrm{.}25$

$40\mathrm{.}20$

The R$.$O$.$P for the DVDs is $3.$ The order size $=5.$ The starting inventory $=5.$

The manager wants to simulate the inventory system for $10$ weeks to see how many units of lost sales will result and how many

units are there in inventory on average. This will help her review the performance and change the parameters, if necessary. $($In

reality, $10$ weeks is a very short period for simulation$).$

The Monte Carlo simulation Process

$1.$ Define problem $($Inventory control, for example$)$

$2.$ Construct the simulation model

$$ Specify the parameters

$$ Specify the variables

$$ Specify the decision rules

$$ Specify the probability distribution

$$ Specification of discrete time increments

$$ Determine starting conditions

$$ Running$-$in period

$$ Stable conditions

$$ Determine run$-$length

$$ Evaluate results

$$ Descriptive statistics

$$ Statistical tests

$$ Validation and debugging

$$ Animation

$$ Design of experiments

Simulation of the Inventory System

Time

Period

Beg.

Inv.

RN Dem. Sold End.

Inv.

Lost

Sale

Place

Order

RN Lead

Time

$1$

$2$

$3$

$4$

$5$

$6$

$7$

$8$

$9$

$10$