Rahul Joshi | IPMX14029

Walton Book Store – Calendar Problem

Executive Summary

This is a typical case of concluding if inventory should be understocked or overstocked. So

that the company can optimise its revenue in case of stock out or excess inventory. We will
be attempting to solve the number of calendars that would be required to order to ensure
that the right amount of inventory is ordered. Herein the case is of Walton Bookstore and
that they require to stock calendars in a way that their profit is maximised.

Introduction

We will be attempting to solve using a simulation model, in this we will build a data model for
forecasting the predictability of how demand and order quantity will behave and average out
the best possible outcome. When we run a simulation, we allow these random input variables
to take on various values, and we keep track of any resulting output variables of interest. In
this way, we can see how the outputs vary as a function of the varying inputs. Simulation
models are also useful for determining how sensitive a system is to changes in operating
conditions. For example, the operations of a supermarket could be simulated. Once the
simulation model has been developed, it could then be run (with suitable modifications) to
ask several what-if questions. For example, if the supermarket experiences a 20% increase in
business, what will happen to the average time customers must wait for service? A huge
benefit of computer simulation is that it enables managers to answer these types of what-if
questions without changing (or building) a physical system. In Spreadsheet simulation
modelling, we begin with input variables and then relate these with appropriate Excel
formulas to produce output variables of interest. The main difference is that simulation uses
random numbers to drive the process. These random numbers are generated with special
functions. Each time the spreadsheet recalculates, all the random numbers change. This
provides the ability to model the logical process once and then use Excel’s recalculation to
generate many different scenarios. By collecting the data from these scenarios, we can see
the most likely values of the outputs and the best-case and worst-case values of the outputs.
Rahul Joshi | IPMX14029

Data Requirement

The objective function is to maximise the profit made in sale of calendars. The data
requirement is as below:

(1) Cost of the calendar, sales price and salvage value

(2) Modelling of the different demand scenarios

Probability Distribution of Demand for Calendars

Probability Cumulative Prob. Demand

0.3 0 100
0.2 0.3 150
0.3 0.5 200
0.15 0.8 250
0.05 0.95 300

Concept

The probability distribution table shown above is a discrete distribution with only five possible
values: 100, 150, 200, 250, and 300. In reality, it is clear that other values of demand are
possible. For example, there could be demand for exactly 187 calendars. In spite of its
apparent lack of realism, we use this discrete distribution for two reasons. First, its simplicity
is a nice feature to get you started with simulation modelling. Second, discrete distributions
are often used in real business simulation models. Even though the discrete distribution is
only an approximation to reality, it can still provide important insights.

For any fixed order quantity, we can show how Excel can be used to simulate 100 replications
(or any other number of replications). Each replication is an independent replay of the events
that occur. To illustrate, suppose we want to simulate profit if Walton orders 200 calendars.
Following figure illustrates the results obtained by simulating 1000 independent replications
for this order quantity:
Rahul Joshi | IPMX14029

(1) Inputs: Enter the cost data in the range C4:C6, the probability distribution of demand
in the range F6:H10, and the proposed order quantity, 200, in cell B9.
(2) Generate random demand: The key to the simulation is the generation of a customer
demand in column D from a random number generated by the RAND function in
column C and the probability distribution of demand. The interval from 0 to 1 is split
into five segments: 0.0 to 0.3 (length 0.3), 0.3 to 0.5 (length 0.2), 0.5 to 0.8 (length
0.3), 0.8 to 0.95 (length 0.15), and 0.95 to 1.0 (length 0.05). These lengths are the
probabilities of the various demands. Then a demand is associated with each random
number, depending on which interval the random number falls in. For example, if a
Rahul Joshi | IPMX14029

random number is 0.5279, this falls in the third interval, so it is associated with the
third possible demand value, 200.
To implement this procedure, you use a VLOOKUP function based on the range
G6:H10. This table has the cumulative probabilities in column G and the possible
demand values in column H.
(3) Revenue: Once the demand is known, the number of calendars sold is the smaller of
the demand and the order quantity.
=Price*MIN(D18,OrderQty)
(4) Ordering cost: The cost of ordering the calendars does not depend on the demand; it
is the unit cost multiplied by the number ordered. Calculate this cost in cell F18 with
the formula
=OrderQty*Cost
(5) Refund: If the order quantity is greater than the demand, there is a refund of $2.50
for each calendar left over; otherwise, there is no refund. Therefore, calculate the
refund in cell G18 with the formula
=IF(D18<OrderQty,(OrderQty-D18)*Refund,0)
(6) Profit: Calculate the profit in cell G19 with the formula = E18+G18-F18

Results:

Average Profit = $211.25

Maximum Profit = $500.00

Finding the best ordering quantity:

By using data tables in Excel’s What-if analysis, we can calculate the best ordering quantity
that will give maximum profit.
Rahul Joshi | IPMX14029

Looking at the Excel Snapshot above, the ordering quantity of 150 numbers gives the
maximum profit of $288.75. There is a loss for ordering quantities higher than 250 numbers.

Using a Data Table to Repeat Simulations

The results obtained using the simulation are with 100 data points. We can go one step ahead
and repeat the simulation for another 100 data points, totalling 10000 data points. This will
drive the solution towards more accuracy.
Rahul Joshi | IPMX14029

From this snapshot, simulation with 10000 data points reveals that the best ordering quantity
is still 150 numbers giving us profit of $264.11. Once the ordering quantity exceeds 250, there
will be loss to the company.

This data model is created for 100 different demand types, however to better understand the
distribution pattern the demand is further extended to 10000 data points using ‘what if – data
table’ function in excel and generalising it over all different order quantities of 1750 to 3250
within steps of 100. Once this is done the final graph that is achieved is as below:

From the graph above it is clear that profit increases for order quantity 2950 and above.
Taking into consideration the standard deviation and the profit that can be made, the profit
at 3050 is optimal for ordering.

Deliverables

(1) The simulation model of revenues at each order point

(2) The maximum profit that can be achieved
Rahul Joshi IPMX14029

Inputs Probability Distribution of

Cost of calendar 7.5 per unit Demand for Calendars
Cumulative
Probability Demand
Price of calendar 10 per unit Prob.
Refund value of calendar 2.5 per unit 0.3 0 100
0.2 0.3 150
Decision Variable 0.3 0.5 200
Order Quantity 200 units 0.15 0.8 250
0.05 0.95 300
Output
Average Profit $155.00
Maximum Profit $500.00
Minimum Profit -$250.00

Simulation
Random
Simulation Demand Revenue Cost Refund Profit
Number
1 0.815 250 2000 1500 0 500
2 0.440 150 1500 1500 125 125
3 0.046 100 1000 1500 250 -250
4 0.067 100 1000 1500 250 -250
5 0.804 250 2000 1500 0 500
6 0.429 150 1500 1500 125 125
7 0.486 150 1500 1500 125 125
8 0.169 100 1000 1500 250 -250
9 0.690 200 2000 1500 0 500
10 0.065 100 1000 1500 250 -250
11 0.000 100 1000 1500 250 -250
12 0.046 100 1000 1500 250 -250
13 0.163 100 1000 1500 250 -250
14 0.832 250 2000 1500 0 500
15 0.817 250 2000 1500 0 500
16 0.191 100 1000 1500 250 -250
17 0.164 100 1000 1500 250 -250
18 0.087 100 1000 1500 250 -250
19 0.255 100 1000 1500 250 -250
20 0.355 150 1500 1500 125 125
21 0.014 100 1000 1500 250 -250
22 0.941 250 2000 1500 0 500
23 0.888 250 2000 1500 0 500
24 0.021 100 1000 1500 250 -250
25 0.246 100 1000 1500 250 -250
26 0.246 100 1000 1500 250 -250
27 0.425 150 1500 1500 125 125
28 0.714 200 2000 1500 0 500
29 0.807 250 2000 1500 0 500
30 0.094 100 1000 1500 250 -250
31 0.820 250 2000 1500 0 500
32 0.529 200 2000 1500 0 500
33 0.570 200 2000 1500 0 500
34 0.204 100 1000 1500 250 -250
35 0.386 150 1500 1500 125 125
36 0.644 200 2000 1500 0 500
37 0.402 150 1500 1500 125 125
38 0.313 150 1500 1500 125 125
39 0.180 100 1000 1500 250 -250
40 0.613 200 2000 1500 0 500
41 0.880 250 2000 1500 0 500
42 0.997 300 2000 1500 0 500
43 0.372 150 1500 1500 125 125
44 0.354 150 1500 1500 125 125
45 0.118 100 1000 1500 250 -250
46 0.379 150 1500 1500 125 125
47 0.024 100 1000 1500 250 -250
48 0.954 300 2000 1500 0 500
49 0.554 200 2000 1500 0 500
50 0.223 100 1000 1500 250 -250
51 0.526 200 2000 1500 0 500
52 0.183 100 1000 1500 250 -250
53 0.921 250 2000 1500 0 500
54 0.653 200 2000 1500 0 500
55 0.679 200 2000 1500 0 500
56 0.891 250 2000 1500 0 500
57 0.023 100 1000 1500 250 -250
58 0.703 200 2000 1500 0 500
59 0.790 200 2000 1500 0 500
60 0.180 100 1000 1500 250 -250
61 0.083 100 1000 1500 250 -250
62 0.701 200 2000 1500 0 500
63 0.848 250 2000 1500 0 500
64 0.080 100 1000 1500 250 -250
65 0.597 200 2000 1500 0 500
66 0.115 100 1000 1500 250 -250
67 0.712 200 2000 1500 0 500
68 0.975 300 2000 1500 0 500
69 0.198 100 1000 1500 250 -250
70 0.967 300 2000 1500 0 500
71 0.765 200 2000 1500 0 500
72 0.395 150 1500 1500 125 125
73 0.113 100 1000 1500 250 -250
74 0.562 200 2000 1500 0 500
75 0.024 100 1000 1500 250 -250
76 0.897 250 2000 1500 0 500
77 0.354 150 1500 1500 125 125
78 0.734 200 2000 1500 0 500
79 0.969 300 2000 1500 0 500
80 0.788 200 2000 1500 0 500
81 0.185 100 1000 1500 250 -250
82 0.133 100 1000 1500 250 -250
83 0.826 250 2000 1500 0 500
84 0.760 200 2000 1500 0 500
85 0.568 200 2000 1500 0 500
86 0.393 150 1500 1500 125 125
87 0.879 250 2000 1500 0 500
88 0.528 200 2000 1500 0 500
89 0.161 100 1000 1500 250 -250
90 0.654 200 2000 1500 0 500
91 0.257 100 1000 1500 250 -250
92 0.644 200 2000 1500 0 500
93 0.885 250 2000 1500 0 500
94 0.058 100 1000 1500 250 -250
95 0.019 100 1000 1500 250 -250
96 0.115 100 1000 1500 250 -250
97 0.854 250 2000 1500 0 500
98 0.478 150 1500 1500 125 125
 99 0.146 100 1000 1500 250 -250
100 0.436 150 1500 1500 125 125

Average Profit Versus Order Quantity

Order Quantity Average Profit Average Profit
$155.00 $300.00
100 $250.00 $200.00
125 $252.50
$100.00
150 $266.25
175 $238.75 $0.00
100 125 150 175 200 225 250 275 300
200 $252.50 -$100.00
225 $84.38 -$200.00
250 $6.25
-$300.00
275 -$90.63
Order Quantity
300 -$228.75

Data Table for average profit with different order quantities with more repititions
Simulation Order Quantity
$155.00 100 125 150 175 200 225 250 275 300
1 250 263.75 251.25 223.75 143.75 163.125 88.75 -66.25 -150
2 250 258.125 273.75 259.375 245 140.625 55 -71.875 -206.25
3 250 245 288.75 278.125 196.25 82.5 28.75 -120.625 -202.5
4 250 250.625 270 218.125 218.75 120 43.75 -101.875 -180
5 250 267.5 270 190 226.25 88.125 36.25 -103.75 -116.25
6 250 246.875 247.5 231.25 248.75 110.625 70 -70 -161.25
7 250 258.125 266.25 221.875 248.75 123.75 -38.75 -137.5 -243.75
8 250 256.25 273.75 221.875 173.75 123.75 47.5 -94.375 -191.25
9 250 254.375 266.25 214.375 196.25 78.75 66.25 -51.25 -251.25
10 250 263.75 266.25 263.125 170 138.75 55 -141.25 -243.75
11 250 243.125 262.5 257.5 226.25 146.25 -16.25 -26.875 -210
12 250 245 270 255.625 181.25 105 13.75 -128.125 -217.5
13 250 275 236.25 223.75 158.75 95.625 -38.75 -83.125 -270
14 250 260 273.75 238.75 166.25 99.375 103.75 -105.625 -183.75
15 250 258.125 262.5 199.375 230 131.25 81.25 -182.5 -187.5
16 250 254.375 258.75 218.125 203.75 88.125 66.25 -45.625 -187.5
17 250 241.25 270 250 203.75 105 62.5 -83.125 -202.5
18 250 237.5 273.75 236.875 196.25 123.75 96.25 -75.625 -281.25
19 250 261.875 236.25 220 233.75 58.125 -5 -128.125 -251.25
20 250 258.125 258.75 199.375 181.25 146.25 96.25 -45.625 -165
21 250 260 255 205 128.75 108.75 2.5 -41.875 -258.75
22 250 245 262.5 265 158.75 140.625 13.75 -83.125 -247.5
23 250 256.25 232.5 235 218.75 153.75 -42.5 -139.375 -270
24 250 258.125 228.75 225.625 233.75 123.75 6.25 -75.625 -270
25 250 260 232.5 236.875 192.5 136.875 6.25 -53.125 -187.5
26 250 256.25 270 261.25 188.75 131.25 73.75 -145 -135
27 250 261.875 236.25 250 248.75 166.875 -12.5 -41.875 -232.5
28 250 261.875 285 221.875 181.25 121.875 2.5 -62.5 -270
29 250 237.5 251.25 253.75 188.75 78.75 -5 -66.25 -202.5
30 250 241.25 240 246.25 245 108.75 47.5 -64.375 -232.5
31 250 260 255 218.125 241.25 127.5 88.75 -111.25 -288.75
32 250 248.75 270 186.25 211.25 170.625 81.25 -68.125 -195
33 250 265.625 255 236.875 233.75 148.125 10 -130 -153.75
34 250 252.5 281.25 160 218.75 116.25 58.75 -90.625 -251.25
35 250 261.875 255 233.125 125 106.875 -5 -30.625 -131.25
36 250 263.75 266.25 218.125 218.75 144.375 13.75 -23.125 -105
37 250 252.5 240 212.5 166.25 133.125 -8.75 -130 -172.5
38 250 261.875 270 231.25 143.75 204.375 -1.25 -73.75 -270
39 250 258.125 243.75 248.125 192.5 118.125 133.75 -105.625 -172.5
40 250 248.75 285 218.125 203.75 118.125 28.75 -154.375 -198.75
41 250 261.875 228.75 246.25 185 168.75 2.5 -64.375 -258.75
42 250 271.25 266.25 251.875 203.75 61.875 77.5 -96.25 -213.75
43 250 254.375 285 186.25 158.75 118.125 -5 -131.875 -221.25
44 250 243.125 266.25 221.875 226.25 65.625 43.75 -81.25 -333.75
45 250 258.125 247.5 251.875 211.25 35.625 25 -66.25 -236.25
46 250 261.875 270 231.25 237.5 161.25 13.75 -118.75 -168.75
47 250 250.625 247.5 240.625 188.75 97.5 -1.25 -71.875 -123.75
48 250 246.875 240 221.875 162.5 138.75 40 -85 -210
49 250 260 255 240.625 200 99.375 111.25 -85 -183.75
50 250 258.125 277.5 246.25 207.5 103.125 96.25 -116.875 -206.25
51 250 254.375 258.75 197.5 260 118.125 21.25 -113.125 -153.75
52 250 243.125 243.75 244.375 200 135 118.75 -133.75 -225
53 250 260 270 229.375 166.25 80.625 25 -83.125 -187.5
54 250 256.25 262.5 229.375 222.5 60 -16.25 -66.25 -217.5
55 250 254.375 270 246.25 248.75 84.375 43.75 -53.125 -131.25
56 250 269.375 258.75 208.75 218.75 71.25 73.75 -70 -232.5
57 250 267.5 281.25 231.25 166.25 112.5 -50 -107.5 -232.5
58 250 250.625 262.5 261.25 143.75 148.125 -31.25 -126.25 -161.25
59 250 258.125 281.25 250 155 75 32.5 -34.375 -176.25
60 250 254.375 251.25 216.25 245 71.25 32.5 -169.375 -180
61 250 250.625 273.75 223.75 218.75 120 -27.5 -79.375 -273.75
62 250 245 277.5 227.5 177.5 90 62.5 -175 -258.75
63 250 258.125 258.75 250 230 71.25 -20 -88.75 -232.5
64 250 252.5 258.75 218.125 155 125.625 21.25 -146.875 -105
65 250 254.375 255 263.125 218.75 129.375 6.25 -161.875 -311.25
66 250 256.25 255 203.125 196.25 105 10 -70 -255
67 250 260 262.5 244.375 173.75 133.125 17.5 -167.5 -225
68 250 269.375 266.25 199.375 192.5 157.5 -23.75 -56.875 -176.25
69 250 248.75 277.5 220 237.5 150 21.25 -28.75 -127.5
70 250 260 240 176.875 188.75 82.5 -27.5 -53.125 -180
71 250 256.25 258.75 218.125 162.5 120 -12.5 -81.25 -210
72 250 256.25 281.25 229.375 173.75 84.375 -46.25 -152.5 -225
73 250 248.75 277.5 227.5 218.75 101.25 -23.75 -100 -277.5
74 250 260 277.5 231.25 140 142.5 70 -109.375 -318.75
75 250 250.625 277.5 240.625 185 56.25 13.75 -40 -240
76 250 263.75 277.5 285.625 233.75 121.875 -5 -98.125 -206.25
77 250 265.625 281.25 235 237.5 121.875 36.25 -111.25 -247.5
78 250 256.25 262.5 229.375 200 129.375 17.5 -111.25 -206.25
79 250 248.75 281.25 206.875 207.5 166.875 25 -103.75 -262.5
80 250 256.25 270 231.25 177.5 106.875 36.25 -139.375 -262.5
81 250 254.375 266.25 253.75 188.75 28.125 2.5 -21.25 -243.75
82 250 248.75 255 195.625 143.75 118.125 13.75 -92.5 -270
83 250 254.375 277.5 238.75 215 108.75 40 -64.375 -266.25
84 250 269.375 285 272.5 252.5 91.875 32.5 -109.375 -142.5
85 250 261.875 240 227.5 207.5 63.75 -50 -58.75 -217.5
86 250 239.375 262.5 266.875 200 95.625 17.5 -36.25 -127.5
87 250 269.375 247.5 223.75 271.25 84.375 32.5 -98.125 -176.25
88 250 267.5 258.75 229.375 203.75 58.125 10 -163.75 -172.5
89 250 261.875 236.25 218.125 237.5 135 -61.25 12.5 -176.25
90 250 252.5 255 240.625 185 138.75 -20 -165.625 -150
91 250 258.125 266.25 161.875 117.5 76.875 -8.75 -118.75 -228.75
92 250 248.75 281.25 255.625 188.75 73.125 47.5 -83.125 -191.25
93 250 233.75 303.75 257.5 170 110.625 -8.75 -105.625 -221.25
94 250 254.375 243.75 176.875 196.25 106.875 88.75 -81.25 -221.25
95 250 261.875 266.25 227.5 181.25 150 -1.25 -148.75 -228.75
96 250 271.25 262.5 236.875 241.25 101.25 28.75 -137.5 -206.25
97 250 261.875 247.5 223.75 245 166.875 -16.25 -152.5 -243.75
 98 250 254.375 258.75 238.75 196.25 129.375 81.25 -98.125 -311.25
99 250 260 258.75 229.375 211.25 105 36.25 -8.125 -221.25
100 250 252.5 251.25 220 166.25 159.375 13.75 -47.5 -228.75
Average $250.00 $255.99 $262.09 $229.94 $199.40 $113.51 $24.89 -$92.82 -$212.48

Average Profit
$300.00

$200.00

$100.00

$0.00
100 125 150 175 200 225 250 275 300
-$100.00

-$200.00

-$300.00
Order Quantity
Name: Rahul Joshi Cycle RN Day of breakdown Cumulative day Cost of maintenance Cumulative cost
Roll No. IPMX14029 1 0.552 5 5 11000 11000
2 0.081 4 9 11000 22000
3 0.255 5 14 11000 33000
Corrective Maintenance 4 0.390 5 19 11000 44000
5 0.976 6 25 11000 55000
Random Numbers Probablity Day 6 0.171 4 29 11000 66000
0-0.24999 0 4 7 0.793 6 35 11000 77000
0.25-0.7499 0.25 5 8 0.201 4 39 11000 88000
0.75-1 0.75 6 9 0.895 6 45 11000 99000
10 0.843 6 51 11000 110000
11 0.504 5 56 11000 121000
Cost of maintenance 11000 12 0.820 6 62 11000 132000
13 0.495 5 67 11000 143000
14 0.601 5 72 11000 154000
15 0.201 4 76 11000 165000
16 0.272 5 81 11000 176000
17 0.918 6 87 11000 187000
18 0.542 5 92 11000 198000
19 0.613 5 97 11000 209000
20 0.698 5 102 11000 220000
21 0.341 5 107 11000 231000
22 0.226 4 111 11000 242000
23 0.219 4 115 11000 253000
24 0.327 5 120 11000 264000
25 0.560 5 125 11000 275000
26 0.240 4 129 11000 286000
27 0.048 4 133 11000 297000
28 0.709 5 138 11000 308000
29 0.014 4 142 11000 319000
30 0.607 5 147 11000 330000

Average cost per day 2244.90

Preventive Maintenance Day 4

Random Numbers Probablity Day Cost of maintenance 11000

0-0.24999 0 4 Cost of replacement 6000
0.25-0.7499 0.25 5 Replacement day 4
0.75-1 0.75 6

Cycle RN Time till breakdown Schedule time to replace Event that concludes cycle Cumulative days Cost Cumulative cost
1 0.961 6 4 REPLACEMENT 4 6000 6000
2 0.561 5 4 REPLACEMENT 8 6000 12000
3 0.463 5 4 REPLACEMENT 12 6000 18000
4 0.584 5 4 REPLACEMENT 16 6000 24000
5 0.829 6 4 REPLACEMENT 20 6000 30000
6 0.799 6 4 REPLACEMENT 24 6000 36000
7 0.594 5 4 REPLACEMENT 28 6000 42000
8 0.004 4 4 BREAKDOWN 32 11000 53000
9 1.000 6 4 REPLACEMENT 36 6000 59000
10 0.602 5 4 REPLACEMENT 40 6000 65000
11 0.118 4 4 BREAKDOWN 44 11000 76000
12 0.805 6 4 REPLACEMENT 48 6000 82000
13 0.778 6 4 REPLACEMENT 52 6000 88000
14 0.017 4 4 BREAKDOWN 56 11000 99000
15 0.386 5 4 REPLACEMENT 60 6000 105000
16 0.855 6 4 REPLACEMENT 64 6000 111000
17 0.231 4 4 BREAKDOWN 68 11000 122000
18 0.388 5 4 REPLACEMENT 72 6000 128000
19 0.179 4 4 BREAKDOWN 76 11000 139000
20 0.482 5 4 REPLACEMENT 80 6000 145000
21 0.807 6 4 REPLACEMENT 84 6000 151000
22 0.594 5 4 REPLACEMENT 88 6000 157000
23 0.395 5 4 REPLACEMENT 92 6000 163000
24 0.933 6 4 REPLACEMENT 96 6000 169000
25 0.523 5 4 REPLACEMENT 100 6000 175000
26 0.704 5 4 REPLACEMENT 104 6000 181000
27 0.062 4 4 BREAKDOWN 108 11000 192000
28 0.648 5 4 REPLACEMENT 112 6000 198000
29 0.789 6 4 REPLACEMENT 116 6000 204000
30 0.717 5 4 REPLACEMENT 120 6000 210000

Average cost per day 1750

1750 3 4 5 6
1 2000 1833.33 1891.89 2185.43
2 2000 1666.67 2112.68 2142.86
3 2000 1750.00 1936.62 2244.90
4 2000 1833.33 2187.50 2200.00
5 2000 1916.67 2056.74 2229.73
6 2000 1791.67 2173.91 2200.00
7 2000 1833.33 2071.43 2115.38
8 2000 1666.67 2013.89 2171.05
9 2000 1916.67 2112.68 2115.38
10 2000 1625.00 2034.48 2101.91
11 2000 1875.00 2000.00 2244.90
12 2000 1750.00 1972.79 2129.03
13 2000 1791.67 2167.83 2200.00
14 2000 1791.67 2163.12 2171.05
15 2000 1791.67 1923.08 2101.91
16 2000 1583.33 1849.32 2200.00
17 2000 1791.67 1849.32 2214.77
18 2000 1750.00 2132.87 2171.05
19 2000 1791.67 2092.20 2156.86
20 2000 1750.00 2132.87 2075.47
21 2000 1916.67 2127.66 2115.38
22 2000 1791.67 2083.33 2244.90
23 2000 1875.00 1979.17 2200.00
24 2000 1750.00 2062.94 2185.43
25 2000 1791.67 2167.83 2200.00
26 2000 1750.00 2147.89 2229.73
27 2000 1750.00 1840.28 2260.27
28 2000 1791.67 2056.74 2291.67
29 2000 1750.00 2118.06 2214.77
30 2000 1750.00 2042.25 2129.03
Cost/ day 2000.000 1780.556 2050.045 2181.429
ntive Maintenance Day 5

Random Numbers Probablity Day Cost of maintenance 11000

0-0.24999 0 4 Cost of replacement 6000
0.25-0.7499 0.25 5 Maintenance day 5
0.75-1 0.75 6

Cycle RN Time till breakdown Schedule time to replace Event that concludes cycle Cumulative days Cost Cumulative cost
1 0.409 5 5 BREAKDOWN 5 11000 11000
2 0.890 6 5 REPLACEMENT 10 6000 17000
3 0.872 6 5 REPLACEMENT 15 6000 23000
4 0.924 6 5 REPLACEMENT 20 6000 29000
5 0.333 5 5 BREAKDOWN 25 11000 40000
6 0.707 5 5 BREAKDOWN 30 11000 51000
7 0.362 5 5 BREAKDOWN 35 11000 62000
8 0.062 4 5 BREAKDOWN 39 11000 73000
9 0.161 4 5 BREAKDOWN 43 11000 84000
10 0.311 5 5 BREAKDOWN 48 11000 95000
11 0.827 6 5 REPLACEMENT 53 6000 101000
12 0.819 6 5 REPLACEMENT 58 6000 107000
13 0.329 5 5 BREAKDOWN 63 11000 118000
14 0.016 4 5 BREAKDOWN 67 11000 129000
15 0.823 6 5 REPLACEMENT 72 6000 135000
16 0.542 5 5 BREAKDOWN 77 11000 146000
17 0.505 5 5 BREAKDOWN 82 11000 157000
18 0.391 5 5 BREAKDOWN 87 11000 168000
19 0.096 4 5 BREAKDOWN 91 11000 179000
20 0.796 6 5 REPLACEMENT 96 6000 185000
21 0.985 6 5 REPLACEMENT 101 6000 191000
22 0.750 5 5 BREAKDOWN 106 11000 202000
23 0.806 6 5 REPLACEMENT 111 6000 208000
24 0.293 5 5 BREAKDOWN 116 11000 219000
25 0.939 6 5 REPLACEMENT 121 6000 225000
26 0.337 5 5 BREAKDOWN 126 11000 236000
27 0.321 5 5 BREAKDOWN 131 11000 247000
28 0.866 6 5 REPLACEMENT 136 6000 253000
29 0.176 4 5 BREAKDOWN 140 11000 264000
30 0.301 5 5 BREAKDOWN 145 11000 275000

Average cost per day 1896.551724

1896.552 3 4 5 6
1 2000 1791.67 1986.30 2185.43
2 2000 1750.00 2142.86 2214.77
3 2000 1708.33 2183.10 2171.05
4 2000 1875.00 2132.35 2171.05
Rahul Joshi | IPMX14029

Maintenance Problem
Executive Summary

The problem is basically about a company that wants to understand if they should choose
between preventive maintenance and corrective maintenance. The Heavy-duty company has
a motor that works fine for three days but tends to break down between 4 – 6 days. They
realize that they incur $11000 cost for every repair; however, if they were to do preventive
maintenance when the production line was not in use, it would cost them only $6000.

Introduction

The Heavy Duty Company has just purchased a giant machine for a new production process.
The device is powered by a motor that occasionally breaks down. Therefore, a second standby
motor is kept, and the two motors are rotated in use. The breakdowns always occur on the
fourth, fifth, or sixth day the motor uses. Fortunately, overhauling a motor takes fewer than
three days, so a replacement is always ready. The cost of replacement due to breakdown is
$11000/-.

The preventive maintenance would involve scheduling the motor to be removed and replaced
for an overhaul at a certain time, even if a breakdown has not occurred. Scheduling the
overhaul enables removing and replacing the motor at a convenient time when the machine
is not in use, so no production is lost. The cost of replacement without breakdown is $6000/-

Data Requirement

The basic idea is to identify least cost incurred while choosing one of the two options. Basically
the idea is to minimize the maintenance cost. Data required for this would be as below:

(1) Number of days machine will run with given number of replacements for both the type
of maintenance

(2) Cost of replacement for each type of maintenance

(3) Cost per day of each type of maintenance

Rahul Joshi | IPMX14029

Implementation Phases

The probability of breakdown on each day are mentioned below.

Day Probability of a breakdown Corresponding Random Numbers

1,2,3 0
4 0.25 0 to 0.2499
5 0.5 0.25 to 0.7499
6 0.25 0.75 to 0.9999
The cost of replacement due to breakdown is $11000/- and without breakdown is $6000/-.

To conclude weather preventive maintenance to be adopted or corrective maintenance to be

adopted, cost per day for each type of maintenance shall be decision factor.

Concept

Objective Function: To minimize maintenance cost

(1) Corrective maintenance:

For 30 cycles, 30 random numbers are taken as a probability of breakdown for reference.
Based on the probabilities, we got breakdown day and the cumulative days of those 30 cycles
calculated. The cost of replacement is $11000/-, with breakdown days available, we
calculated the cumulative cost. With total days and total cost available, cost per day is also
calculated. Please refer below data model made in excel:
Rahul Joshi | IPMX14029

(2) Preventive maintenance:

For 30 cycles, 30 random numbers are taken as a probability of breakdown for reference.
Based on the probabilities, we got breakdown days. First the preventive maintenance was
calculated assuming maintenance is done every 4th day. If the breakdown day is less than or
on 4th day, maintenance cost should be breakdown cost which is $11000/-. However, if
breakdown day is more than replacement day which is 4th day, the maintenance cost will be
replacement cost without breakdown which is $6000/-. With cost of maintenance available
cumulative cost and cumulative days is calculated and cost per day is also calculated.

For other days, either same method can be repeated or data table can be used to generate
more data with different days of preventive maintenance. With average cost per day
calculated above for 4th day maintenance as a reference. With no of days in rows, and average
table being 4th day’s average, 4 will be the row input cell of data table and column input cell
will be blank. With this we got the additional data for all the days. With average of all those
we got average cost per day for each of 3rd, 4th, 5th and 6th day preventive maintenance.

Please refer below data model for 4th day in excel:

Data table for 5th day to be made in a similar way.

Rahul Joshi | IPMX14029

Deliverables

(1) Identify cost for working without preventive maintenance

(2) Identify preventive maintenance costs when done on 4th 5th or 6th day
(3) Suggest least cost model
Rahul Joshi
IPMX14029

Given Data
Regular Sales Price 1500
Mean Demand 2500
SD of Demand 750
MSP 400
Cost Price 600
Disposal Price 200
Assumed Demand 3000

Sr. No RN for Demand Demand Leftover Stock Sales Price RN for Sales Sale Demand Salvage Stock OG Demand Revenue DSale Demand Revenue Salvage Demand Revenue Cost Price total Profit
1 0.84 3240 0 1500 0.14 161 0 4500000 0 0 1800000 2700000
2 0.08 1469 1531 735 0.67 725 806 2204099 532633 161127 1800000 1097859
3 0.83 3230 0 1500 0.14 161 0 4500000 0 0 1800000 2700000
4 0.95 3737 0 1500 0.59 269 0 4500000 0 0 1800000 2700000
5 0.16 1759 1241 880 0.56 588 653 2639236 517142 130536 1800000 1486914
6 0.49 2487 513 1244 0.87 517 0 3730769 637738 0 1800000 2568508
7 0.83 3210 0 1500 0.48 245 0 4500000 0 0 1800000 2700000
8 0.85 3268 0 1500 0.41 230 0 4500000 0 0 1800000 2700000
9 0.25 1997 1003 999 0.61 547 456 2995713 546498 91116 1800000 1833326
10 0.49 2479 521 1239 0.39 346 175 3718019 428656 35089 1800000 2381764
11 0.26 2007 993 1003 0.28 400 593 3010350 401461 118604 1800000 1730415
12 0.93 3624 0 1500 0.48 245 0 4500000 0 0 1800000 2700000
13 0.22 1913 1087 956 0.81 674 413 2869027 644548 82669 1800000 1796244
14 0.63 2754 246 1377 0.30 256 0 4130514 339148 0 1800000 2669662
15 0.86 3303 0 1500 0.59 268 0 4500000 0 0 1800000 2700000
16 0.53 2547 453 1274 1.00 701 0 3821109 576470 0 1800000 2597579
17 0.28 2054 946 1027 0.59 521 424 3081647 535332 84884 1800000 1901863
18 0.85 3283 0 1500 0.34 217 0 4500000 0 0 1800000 2700000
19 0.84 3249 0 1500 0.86 340 0 4500000 0 0 1800000 2700000
20 0.83 3230 0 1500 0.47 243 0 4500000 0 0 1800000 2700000
21 0.91 3501 0 1500 0.62 275 0 4500000 0 0 1800000 2700000
22 0.59 2669 331 1334 0.25 260 71 4002810 347418 14216 1800000 2564444
23 0.47 2449 551 1225 0.94 584 0 3673915 674437 0 1800000 2548352
24 0.92 3553 0 1500 0.21 184 0 4500000 0 0 1800000 2700000
25 0.70 2893 107 1447 0.30 229 0 4340051 154263 0 1800000 2694315
26 0.71 2910 90 1455 0.03 107 0 4365676 130314 0 1800000 2695990
27 0.31 2137 863 1068 0.66 529 334 3205433 565194 66815 1800000 2037442
28 0.11 1560 1440 780 0.62 672 767 2340618 524613 153437 1800000 1218668
29 0.35 2212 788 1106 0.73 536 252 3318141 592752 50397 1800000 2161290
30 0.82 3174 0 1500 0.81 322 0 4500000 0 0 1800000 2700000
31 0.98 4110 0 1500 0.12 155 0 4500000 0 0 1800000 2700000
32 0.32 2153 847 1077 0.57 488 358 3230103 525715 71667 1800000 2027485
33 0.13 1651 1349 826 0.61 642 707 2476603 530115 141357 1800000 1348075
34 0.86 3301 0 1500 0.05 118 0 4500000 0 0 1800000 2700000
35 0.74 2985 15 1493 0.19 181 0 4477811 22079 0 1800000 2699891
36 0.17 1780 1220 890 0.53 570 650 2670055 507335 129987 1800000 1507377
37 0.66 2804 196 1402 0.22 223 0 4206007 274786 0 1800000 2680793
38 0.56 2607 393 1303 0.77 433 0 3910466 512301 0 1800000 2622767
39 0.81 3156 0 1500 0.12 152 0 4500000 0 0 1800000 2700000
40 0.43 2372 628 1186 0.14 263 365 3557981 312294 72939 1800000 2143214
41 0.90 3451 0 1500 0.74 304 0 4500000 0 0 1800000 2700000
42 0.36 2237 763 1119 0.75 541 222 3356109 604916 44373 1800000 2205398
43 0.64 2769 231 1385 0.52 312 0 4154204 319224 0 1800000 2673428
44 0.46 2422 578 1211 0.51 399 180 3632515 482903 35901 1800000 2351319
45 0.37 2255 745 1128 1.00 903 0 3382756 839859 0 1800000 2422615
46 0.40 2307 693 1154 0.39 383 310 3460673 441489 62033 1800000 2164195
47 0.35 2218 782 1109 0.03 175 606 3327159 194535 121298 1800000 1842991
48 0.84 3246 0 1500 0.72 298 0 4500000 0 0 1800000 2700000
49 0.50 2501 499 1250 0.56 394 105 3751052 492880 21021 1800000 2464953
50 0.13 1665 1335 832 0.44 557 778 2496923 463627 155669 1800000 1316219
51 0.74 2980 20 1490 0.45 243 0 4470215 29588 0 1800000 2699803
52 0.99 4431 0 1500 0.67 286 0 4500000 0 0 1800000 2700000
53 0.78 3079 0 1500 0.92 363 0 4500000 0 0 1800000 2700000
54 0.84 3253 0 1500 0.83 327 0 4500000 0 0 1800000 2700000
55 0.02 983 2017 492 0.83 990 1027 1474545 486771 205324 1800000 366641
56 0.50 2503 497 1251 0.74 455 42 3754483 569153 8447 1800000 2532083
57 0.83 3216 0 1500 0.15 164 0 4500000 0 0 1800000 2700000
58 0.95 3755 0 1500 0.31 208 0 4500000 0 0 1800000 2700000
59 0.35 2211 789 1105 0.55 465 324 3316405 514167 64790 1800000 2095362
60 0.47 2439 561 1219 0.18 270 291 3657826 329374 58262 1800000 2245463
61 0.68 2858 142 1429 0.62 313 0 4287098 202830 0 1800000 2689927
62 0.86 3301 0 1500 0.06 121 0 4500000 0 0 1800000 2700000
63 0.84 3257 0 1500 0.26 198 0 4500000 0 0 1800000 2700000
64 0.03 1101 1899 550 0.80 929 971 1650827 510984 194171 1800000 555981
65 0.51 2526 474 1263 0.97 592 0 3789601 598251 0 1800000 2587852
66 0.20 1864 1136 932 0.78 673 463 2796405 627266 92559 1800000 1716230
67 0.27 2039 961 1020 0.56 513 448 3058798 522828 89605 1800000 1871231
68 0.27 2046 954 1023 0.77 607 348 3068463 620441 69552 1800000 1958456
69 0.99 4313 0 1500 0.34 216 0 4500000 0 0 1800000 2700000
70 0.52 2541 459 1270 0.48 360 100 3810908 457010 19926 1800000 2487844
71 0.30 2116 884 1058 0.58 503 381 3173633 532014 76268 1800000 1981914
72 0.50 2496 504 1248 0.76 462 42 3744511 576359 8379 1800000 2529250
73 0.42 2347 653 1173 0.41 382 272 3520018 447707 54351 1800000 2222076
74 0.44 2388 612 1194 0.54 416 196 3582192 496962 39136 1800000 2318289
75 0.94 3689 0 1500 0.80 319 0 4500000 0 0 1800000 2700000
76 0.44 2378 622 1189 0.15 265 357 3567308 315397 71311 1800000 2154016
77 0.82 3193 0 1500 0.58 267 0 4500000 0 0 1800000 2700000
78 0.13 1661 1339 831 0.96 921 418 2491530 765277 83505 1800000 1540312
79 0.89 3411 0 1500 0.42 233 0 4500000 0 0 1800000 2700000
80 0.05 1237 1763 619 0.60 751 1012 1856014 464505 202369 1800000 722888
81 0.21 1892 1108 946 0.77 658 449 2838423 622787 89896 1800000 1751106
82 0.70 2888 112 1444 0.69 323 0 4331809 161905 0 1800000 2693714
83 0.31 2132 868 1066 0.71 553 315 3198605 589112 63013 1800000 2050730
84 0.95 3746 0 1500 0.37 222 0 4500000 0 0 1800000 2700000
85 0.15 1715 1285 857 0.02 179 1106 2571813 153708 221232 1800000 1146753
86 0.82 3199 0 1500 0.88 345 0 4500000 0 0 1800000 2700000
87 0.54 2567 433 1283 0.60 388 45 3850165 497646 9093 1800000 2556904
88 0.66 2818 182 1409 0.72 352 0 4226669 256729 0 1800000 2683398
89 0.83 3229 0 1500 0.50 250 0 4500000 0 0 1800000 2700000
90 0.98 4097 0 1500 0.34 215 0 4500000 0 0 1800000 2700000
91 0.30 2098 902 1049 0.66 538 364 3147215 564579 72737 1800000 1984532
92 0.07 1399 1601 700 0.55 679 922 2098606 474992 184384 1800000 957981
93 0.50 2505 495 1253 0.57 396 99 3757966 495998 19746 1800000 2473710
94 0.15 1728 1272 864 0.84 753 520 2591587 650162 103931 1800000 1545680
95 0.29 2092 908 1046 0.64 532 375 3138063 556977 75097 1800000 1970136
96 0.84 3251 0 1500 0.01 63 0 4500000 0 0 1800000 2700000
97 0.83 3223 0 1500 0.27 200 0 4500000 0 0 1800000 2700000
98 0.92 3568 0 1500 0.34 216 0 4500000 0 0 1800000 2700000
99 0.24 1970 1030 985 0.50 507 523 2955011 499880 104500 1800000 1759392
100 0.73 2967 33 1484 0.16 174 0 4451119 48350 0 1800000 2699469
2292045
 2292045
1750 1566110.1
1850 1624199 2500000
1950 1727206.9
2050 1767060.5
2000000
2150 1810371.9
2250 1871925.8
2350 1980449.7 1500000
2450 1989644.5
2550 2015728.7
1000000
2650 2070302.3
2750 2021218
2850 2161978.6 500000
2950 2225287.7
3050 2097740.2
0
3150 2145315
1750 1850 1950 2050 2150 2250 2350 2450 2550 2650 2750 2850 2950 3050 3150 3250
3250 2095013.7

2292045 1750 1850 1950 2050 2150 2250 2350 2450 2550 2650 2750 2850 2950 3050 3150 3250
1 1540767.7 1600095.611 1663133.666 1739788.595 1765413.116 1894509.814 1856743.728 2040248.636 1963272.738 2125085.111 2148768 2045716.8 2216957.2 2145234.3 2208696.6 2026345.2
2 1528033.8 1576133.398 1694716.873 1741330.691 1753007.308 1929579.854 1886175.74 2002794.249 1942971.492 2079342.46 2093288.5 2165184.5 2192443.3 2219752.4 2076270.1 2183711.9
3 1556008.5 1615068.11 1668683.851 1732437.032 1789050.034 1934158.42 1932759.751 2017049.154 2060506.794 2131849.944 2194861.3 2092704.3 2077499.3 2248917.9 2099166.9 2136964.1
4 1543499.2 1624116.709 1720946.494 1771226.675 1867950.8 1959339.374 1933066.693 2109285.268 1997964.784 2074196.465 2047003.9 2023997.3 2159244.6 2172386.1 2280685 2143238.5
5 1551308.4 1605451.001 1695548.52 1755405.826 1796424.549 1921467.715 1950210.509 1898502.812 2059742.241 2086338.981 2161564.4 2135398.3 2152498.2 2225944.6 2292618.8 2224126.5
6 1532148.9 1604186.543 1690490.475 1766363.819 1804002.122 1854932.125 1952613.82 1956101.309 2058054.649 2113415.351 1978625.8 2250903.7 2191964.4 2178274.1 2264385.8 2162053.3
7 1543222.4 1614670.65 1689240.867 1790043.631 1822600.488 1860536.97 1953581.495 2006884.182 2108743.523 2032821.667 2144601.5 2133545.6 2323148.1 2165618.3 2152969.8 2079120.2
8 1541496.6 1636181.625 1719587.714 1772253.233 1809196.915 1827403.02 1966594.228 2044394.172 2130973.98 2107515.114 2155801 2091442.2 2124404.2 2320454.7 2128145.8 2124574.2
9 1520460.2 1624241.877 1678501.52 1789764.174 1822302.282 1901045.807 1918792.933 1850009.976 2092546.136 2134715.553 2028535.1 2016208.3 2127607.6 2187140.8 2119040.3 2169276.3
10 1539695.9 1635538.779 1672871.423 1742577.036 1826713.367 1821801.055 1970086.108 2014752.529 2031375.168 2124865.531 2097021.6 2220087.8 2127661.5 2087084.4 2127025.9 2058934.8
11 1549675.1 1623620.657 1694598.376 1754097.911 1798761.082 1847638.413 1965487.728 1954737.447 2022589.817 2115796.266 2105208.7 2174928.1 2184330.4 2210215.7 2125054.4 2250017.2
12 1561701.2 1619029.381 1711249.566 1747478.839 1818936.786 1925918.517 1961040.317 2029428.956 2027410.916 2081698.841 2054624.1 2213470.1 2217356.9 2226202 2054251.8 2108601.3
13 1563287.9 1594356.885 1673501.217 1725847.201 1816100.753 1890880.677 1949011.638 2014512.412 2037837.671 2092334.128 2059290.2 2093988.6 2200355.1 2123915.8 2199640.2 2050119
14 1560558.9 1594493.682 1723241.646 1760670.655 1801921.657 1842562.312 1963891.997 1978442.084 2009204.81 2144258.086 2152969 2086499.2 2062938.4 2075160.6 2218911.6 2132936.9
15 1513472.4 1585530.457 1619581.903 1772988.772 1803094.587 1903666.805 1937532.311 1940775.665 2078657.883 2071933.79 2253565.1 2217109 2217703.2 2133552.8 2125099.9 2154365.9
16 1555133.1 1616845.87 1660799.885 1720876.384 1820405.463 1903863.191 1964462.863 2065070.608 2041295.494 2082496.928 2063667.7 2035693.8 2208137.9 2288907.9 2214009.1 2174855.5
17 1563225.3 1605968.341 1705332.644 1766156.363 1819521.065 1896143.489 1962995.678 1990911.212 2003313.763 2055269.192 2048768.4 2203170.9 2230991.1 2019745.9 2107715.6 2219436.6
18 1554574.4 1600114.69 1652913.013 1786397.132 1834703.641 1877023.654 1994563.761 1991738.114 2061757.696 2062235.403 2106850.6 2157980 2217489.4 2164635.3 2139830.5 2122861.6
19 1535050.3 1635317.372 1630022.888 1780043.881 1802029.838 1916814.073 1882437.846 1927535.674 2005967.208 2126103.689 2089727 2194293.3 2182727.5 2150151 2234031.6 2095248.2
20 1538204.5 1636559.033 1692670.815 1781092.826 1835039.205 1831336.849 2026612.453 1976894.111 1966820.987 2028585.99 2142772.7 2173756.5 2212852.4 2265661.4 2089452.6 2082685.6
21 1566753.5 1596731.065 1704850.198 1776880.229 1780463.866 1836671.748 1982102.903 1979321.521 2090868.156 2121527.872 2152578.2 2109174.6 2124400.8 2218692.4 2100242 2266739.8
22 1525004.7 1624218.709 1675323.423 1707899.591 1844388.207 1835634.684 1944747.204 1981964.817 2067793.739 2013235.101 2117963.5 2115248.4 2203728.6 2128641.3 2241029.4 2096232.5
23 1554385.4 1603130.549 1691488.236 1728484.263 1781534.5 1878312.827 1912310.599 2006760.585 1989829.603 1899617.808 1987642.1 2042508.8 2120132 2199922 2215715.2 2237932.3
24 1530854.7 1645762.74 1681644.208 1726564.428 1829869.69 1893610.995 1963195.896 1992809.357 2054184.511 2023521.818 2051058.7 2112189.2 2105047.6 2120807.1 2087796.1 2310764.5
25 1556107.5 1618456.101 1665873.095 1770906.368 1871576.975 1837634.071 1965684.06 1978854.024 1973818.097 2107758.497 2105348.3 2104224.7 2194687.9 2111199.4 2187829.3 2156588.6
26 1556479.9 1624719.882 1671264.998 1780862.255 1828961.529 1848891.986 1925265.058 2028551.678 2063836.533 2063970.895 2142149.7 2194090.8 2127937.3 2121432.3 2150806.1 2183368.3
27 1532713.3 1645819.199 1715739.657 1748320.863 1855583.348 1885305.018 1933719.443 1989923.459 2070679.372 2023432.702 2055439.1 2163741.3 2047044.8 2164925.2 2194806.3 2139880
28 1519652.4 1614078.389 1630508.544 1715200.024 1837141.143 1818178.774 1898421.079 1985112.006 1958831.184 2110032.615 2074353.8 2064532.8 2158171.4 2193373 2128677 2127041.5
29 1559837.4 1633398.511 1713370.043 1705347.994 1841826.725 1855484.104 1968301.149 2056809.39 2060290.271 2085993.999 2075640.2 2083881.1 2200349.3 2037710.6 2225482 2191857.5
30 1521011.8 1606043.334 1689964.932 1753188.847 1810530.641 1887919.129 2010332.321 2007060.646 1987920.737 2004765.172 2122698.9 2164292.5 2156649.2 2077240 2193357.2 2313003.1
31 1550588.5 1606405.442 1668208.684 1729040.542 1832009.626 1902199.22 1886130.453 1988376.016 1982485.014 2108797.677 2052782.5 2059043.5 2177586.6 2236961.4 2224021.8 2075809.2
32 1566259.7 1588676.034 1702099.829 1738035.266 1817039.649 1854638.318 1936774.792 1991159.099 2088425.576 2018078.633 2038752.1 2094551.6 2106331.2 2103828.5 1939443 2021719
33 1544930.3 1624145.479 1655588.246 1768149.017 1756207.054 1882997.896 1949980.039 2021803.205 2050602.504 2108525.642 2068154.7 2185071.4 2208418 2225718.7 2122492.5 2112822.4
34 1553455.4 1635090.947 1677838.01 1737113.67 1769276.121 1914971.905 1985006.667 2008047.895 2047985.436 2153851.973 2058323.7 2095656.8 2115840.8 2133986.5 2149434.7 2062814.5
35 1525343 1614638.591 1706522.121 1737433.895 1791305.866 1929048.37 1923597.518 2075694.696 2075346.251 2049393.927 2222010.2 2092966.7 2156606.4 2163235.9 2065376.5 2151345.6
36 1562824 1628630.211 1658016.654 1773806.959 1782571.212 1903520.293 1995574.727 2038127.329 2107727.608 2047653.498 2153796.8 2139289.8 2067491.8 2101125.2 1999677.7 2100740.6
37 1518106.6 1636591.239 1669939.963 1765286.12 1843247.494 1846761.873 1963600.56 2001149.006 2096525.654 2075876.191 2118238.7 2178295.7 2074962.1 2173182.4 2120454.6 2210737.7
38 1525144.7 1631439.342 1712838.712 1800124.389 1892712.717 1841632.686 1969507.075 1990891.959 2019060.226 2042701.809 2066937.9 2128610.5 2015587.1 2162574.1 2093030.7 2096840.8
39 1541604 1612241.44 1681178.909 1766953.066 1772293.551 1894363.47 1945386.495 1995342.907 2085820.423 1972238.525 2163074.3 2111097.7 2083578.6 2161874.8 2157931.7 2175613.1
40 1535756.8 1602546.972 1726376.544 1736763.836 1791634.451 1882494.233 1967009.612 2072164.201 2105003.493 2045406.946 2167461.5 2146661.8 2159725.6 2103655.4 2063913 2153490.9
41 1545986.8 1615752.193 1708869.475 1780244.206 1860433.71 1814985.267 1965842.879 1998522.716 2124017.314 2096053.829 2090096.6 2116390.8 2248638.3 2177242.8 2095674.4 2196797.9
42 1539461.8 1625789.391 1661854.69 1777975.375 1785683.139 1897454.412 1925357.438 2031543.778 2139342.244 1951595.081 2118038.1 2169323.3 2233274.8 2187721 2184782.2 2147288.4
43 1553949.7 1640842.228 1690956.278 1798975.863 1849262.117 1861382.8 1925914.709 2023073.615 1965839.555 2030772.428 2225757.4 2131640.9 2176774.4 2150673 2118506.4 2151632.9
44 1529646 1622994.669 1705015.7 1744057.888 1829448.447 1972668.433 1916914.843 2044075.883 1977517.295 2084688.456 2208389.5 1995568.4 2314031.6 2158999.3 2202221.4 2147441.2
45 1557969.8 1648614.172 1686961.156 1713534.146 1878942.201 1872829.676 1962937.054 1994674.904 2010712.393 2049021.644 2160072.1 2162607.6 2168667.7 2074915.9 2116919.1 2388085.6
46 1501988.6 1615819.973 1720159.589 1766666.768 1839678.169 1907711.924 1954903.884 1991327.904 1959365.239 2090829.491 2143019.6 2198869.7 2120668.4 2106929.8 2184842.4 2172096.1
47 1535906.6 1627040.965 1711457.898 1760582.461 1821699.43 1890333.7 1953152.223 1966970.029 2062302.831 2088226.273 2122778.8 2116712.9 2203578.8 2197064.4 2108112.9 2179975
48 1514708.3 1630876.364 1654572.397 1767845.229 1854172.746 1829836.46 1936184.103 1986685.709 1995285.095 2034964.309 2093290.2 2154709.4 2166360.9 1955166.2 2241201.1 2138210.5
49 1496765.1 1643357.431 1725704.432 1800200.078 1866503.17 1935508.207 1874048.478 1890027.032 1950987.613 2019015.437 2138332.7 2142358.6 2064601.6 2202327.9 2227861.9 2116525.8
50 1546871.8 1638125.826 1676042.143 1721299.251 1851076.267 1859929.563 1950877.873 1957746.734 2092426.571 2133031.847 2106223.1 2113180.8 2171282.6 2132831.3 2310316.4 2130830.9
51 1534036.3 1627396.702 1681904.104 1796057.112 1798344.626 1920986.789 1870246.156 1949818.658 2057094.536 2149181.601 2070727.4 2138447.5 2111415.4 2078002.3 2093736.6 2228916
52 1534394.2 1636086.544 1690505.26 1787316.928 1817252.491 1872338.309 2022031.765 2028369.72 2085409.163 2124215.624 2084194.7 2121556.5 2122910.7 2318012.6 2104464.7 2075776.9
53 1553267.3 1627848.997 1668187.3 1701475.913 1827977.67 1872915.545 1969926.721 1949904.172 2076930.47 2036139.116 2078426.9 2175272.6 2233476.1 2195151.2 2204109.8 2110872.5
54 1530511.8 1608840.678 1642300.213 1791586.897 1847658.144 1886923.705 2020670.888 1944853.503 2060599.886 2043247.863 2078021.2 2227693 2145655.8 2169100.7 2104497.7 2206559.7
55 1532138.6 1618673.613 1686904.401 1782713.847 1820397.868 1902072.032 1928639.595 2000697.678 2043384.996 2108891.279 2174317.8 2161794.6 2151996.2 2170873.1 2308638.6 2161514.8
56 1552706.8 1632929.99 1673042.231 1769595.955 1802211.816 1841790.398 1975509.994 2028741.166 1999527.593 2003255.51 2177377.8 2124967 2186674.1 2146120.9 2112206.9 2068216.5
57 1533086.4 1584931.15 1708527.344 1771849.4 1815809.305 1882543.833 1982184.17 2021204.723 1986672.555 2118466.111 2129123.8 2063647.5 2230001.4 2214454.2 2226651.5 2090202
58 1547057.9 1655397.144 1699381.755 1767826.609 1819252.083 1877538.052 2000625.334 2000383.009 2058612.038 2005528.268 2104332.9 2177915.2 2216055.1 2213150.8 2327043.2 2174944.4
59 1537873.5 1641149.627 1715808.109 1764425.846 1836906.77 1920418.05 1911993.184 2013016.966 2093189.156 2045348.429 2025284.6 2150780.9 2124750.8 2305422.9 2225414.1 2081433.7
60 1555536.3 1617986.617 1679019.329 1787270.886 1816482.559 1892062.138 1962483.502 1980908.715 2038163.364 2143991.137 2167590.9 2069522.5 2168719.9 2149200.6 2171170.7 2163161.8
61 1564670.6 1604148.235 1670676.874 1779471.142 1741970.982 1864243.155 1980437.149 2108249.171 1989426.121 2097513.896 2060441.7 2155538.1 2157165.2 2221547.5 2099169.2 2127795.2
62 1558698.7 1603876.719 1684042.797 1805286.96 1790608.482 1879333.161 1895873.848 1976149.04 1990339.909 2075587.969 2063373.5 2082590.3 2149092.2 2171267.7 2197497.7 2094806.6
63 1562079.6 1591797.002 1670840.795 1804090.119 1871397.032 1910080.656 1966072.526 1932122.004 1996411.987 2001760.08 1995015.9 2170312.8 2248291.6 2249662 2179104.8 2277042.2
64 1527679.8 1630167.238 1701171.874 1739924.348 1781740.28 1836824.989 1940733.151 2009803.263 1963885.054 2102522.513 2208456.4 2147131.4 2276160.3 2098422.1 2197678.4 2127891.5
65 1557620.8 1641266.114 1663411.734 1729037.999 1775838.217 1871775.386 1986256.874 1956244.016 2073505.464 2103940.973 2041104 2051675.7 2117905.5 1879049.2 2237911.9 2043233.3
66 1543624.9 1609976.625 1710618.641 1798777.991 1833958.498 1962329.623 1980626.932 2034063.39 2075280.647 2120024.948 2133162.5 2079068.8 2107874.7 2136367.9 2116629.2 2003750.1
67 1547221.3 1605054.383 1693362.314 1716010.014 1808208.158 1895061.841 1931174.821 2031868.046 2099637.817 2090732.719 2032884.6 2129365 2160882.6 2175680.9 2246302.9 2050567.3
68 1530964.4 1604372.977 1693760.473 1790253.606 1866565.77 1881337.256 1970020.924 2045855.851 2060307.678 2051809.93 2082051.4 1963844 2107805.4 2108238.5 2090755.7 2197696.9
69 1509796.1 1607489.174 1700348.854 1745397.494 1841799.335 1922752.036 1944805.778 2009315.726 2046246.862 2150906.958 2188784.8 2176597 2195580.9 2160849.1 2102120.3 2089328
70 1546665.7 1603483.039 1698794.686 1770261.044 1789396.889 1926643.151 1957176.534 1975520.922 2117114.035 2031761.857 2183526.3 2094973.4 2073482.3 2168706.4 2297616 2235224.4
71 1551742 1617778.436 1722033.341 1802818.719 1792100.326 1905537.99 1955188.47 2052193.662 1994569.922 2144487.665 2127559 2145137.5 2177244.3 2153575.6 2145749.8 2242644.1
72 1550932.3 1603308.912 1698091.298 1733372.033 1861849.326 1890623.55 1994506.909 1988969.158 1989012.359 2022708.995 2057484.9 2094007.9 2151334.6 2180013 2157304 2225477.1
73 1534704.4 1626377.069 1709238.444 1773238.85 1804287.353 1796764.474 1908855.06 2048466.981 1988795.544 2107074.047 2028226.8 2206520.1 2118961.8 2134460.5 2153658.4 2057112.5
74 1525176 1623004.319 1713489.81 1784110.348 1874420.515 1943094.09 1911178.311 2039621.647 2103777.268 2113163.34 2233999.4 2220601.5 2077891.5 2095452.6 2152915.2 2160761.8
75 1523241.9 1622066.552 1699681.308 1738372.673 1820082.932 1864249.163 1985128.97 1959157.779 1990648.229 2077675.005 2242194.2 2274480.6 2083402.8 2226704.3 2275759 2168724.7
76 1539914.4 1612919.114 1704158.321 1735993.42 1854900.62 1873395.576 1879979.618 1943046.611 2045421.965 2107586.978 2168730.3 2124308.4 2227924.6 2097952.5 1943566.8 2338159.2
77 1529384.6 1619740.629 1675306.24 1731219.491 1819389.697 1901983.147 1964576.141 1941613.673 2069296.887 2083234.288 2129494.2 2135758.1 2097057.5 2160524.1 2088716.4 2108015.8
78 1564370.5 1569697.68 1694326.718 1745052.886 1874083.869 1870205.295 1988313.298 1984435.515 2070489.263 2091815.682 2176633.8 2159194.4 2169883 2135463 2150276.6 2175120.6
79 1560671.6 1610322.236 1654007.02 1762471.661 1843802.034 1893429.497 1990096.61 1965215.315 2031634.592 2093325.887 2143014.4 2139095.5 2120554.7 2240521.9 2160985.2 2148300.2
80 1547458.3 1641083.558 1665887.386 1761990.478 1828760.242 1826857.352 1949260.945 1950522.64 2055021.393 2010637.978 2179086.9 2172571.6 2142531.1 2149729.7 2137531.7 2318455.5
81 1515844 1593864.793 1677411.752 1773807.913 1825215.412 1865819.063 1923049.331 2033526.246 2079867.898 2141574.736 2138647.6 2074129.1 2159081.2 2162046.4 2057187.5 2135191.2
82 1540252.7 1623941.943 1705022.117 1801570.574 1840423.228 1854819.615 1961298.094 2000164.595 2064999.239 2030318.506 2201563.9 2045156 2103886.7 2206241.1 2107914.3 2166721.9
83 1526594.4 1625936.702 1711052.911 1778983.069 1771387.498 1877119.47 1950960.491 1935457.484 2022692.155 1995270.659 2105647.1 2000324.2 2163657.4 2148333.5 2109769.7 2191386.2
84 1550552.5 1614116.71 1634909.407 1779158.051 1817367.957 1889834.795 1959990.888 2022808.499 2000522.645 1967289.835 2030658.8 2014259.9 2196321.5 2162931.6 2185250.8 2167655.3
85 1549316.6 1639870.085 1669587.589 1751535.851 1845109.836 1885374.261 1925069.427 2004722.558 2020678.132 2072273.456 2050871.5 2126933.4 2176559.3 2257898.4 2206826.4 2108807.3
86 1518885.7 1586578.98 1672168.455 1683909.084 1828323.622 1839995.248 1934018.478 1995835.651 1988251.537 2052298.339 2030005.5 2215549.6 2098837.4 2272958 2142459.2 2244393.9
87 1532729 1618702.153 1696016.417 1757506.337 1860490.244 1903329.015 1968484.393 2004506.572 2038944.5 2138214.224 2130136.1 2187823 2182439.7 2158622.6 2197848.6 2160233.2
88 1522546.2 1623845.481 1663451.597 1786452.965 1849558.286 1875580.689 1972682.512 1990415.121 2066182.418 1975194.345 2096577 2105796.9 2166868.7 2121886.3 2159044.7 2067112.7
89 1544374.9 1605277.898 1706566.176 1774423.65 1819885.899 1905531.47 1948913.999 1994249.956 1892052.791 2030596.077 2141258.6 2200261.2 2031164.4 2153424.7 2231115.2 2140691.9
90 1532013.6 1622254.779 1678290.465 1790441.444 1834002.106 1879781.712 1957064.199 2017495.597 2048271.608 2046278.114 2124808.2 1919590.9 2136141.1 2215043.4 2189390.2 2114975.7
 91 1537896.8 1593658.663 1641898.429 1755381.653 1793506.659 1904039.417 1882874.105 1968992.567 2039792.957 2137851.105 2037291.6 2133144.9 2107677.1 2072345.2 2116660.7 2202586.2
92 1548484.8 1627527.721 1696467.89 1760231.044 1814541.732 1790638.536 1996120.635 1967772.52 1996177.043 2067844.3 2139160.1 2119026.6 2255578.7 2147049.2 2145512.5 1906769.8
93 1547190.9 1620997.015 1674234.231 1765408.423 1829653.235 1858110.671 1890644.225 1945037.954 2061741.904 2031932.402 2119990.4 2246801.1 2174900.9 2105783.3 2044971.1 2244326.1
94 1534659.9 1625978.804 1669926.173 1810862.097 1862892.905 1922023.97 1979764.517 2025305.598 2055533.441 2190834.55 2127682.9 2097469.2 2206808.2 2229288.2 2180530.8 2162514.8
95 1510097.7 1606841.285 1681106.615 1756471.155 1804662.47 1896963.052 1923995.293 1943317.139 2028101.134 2143924.073 1971640.8 2126295.8 2092476.2 2126155.1 2204272.2 2184694.6
96 1525855.4 1594970.34 1679106.71 1737587.622 1847194.047 1895271.67 1960113.009 1960949.535 1978963.357 2081841.455 2128567.1 2059355.1 2096967.6 2142633.6 2161463.1 2179961.7
97 1535376.1 1645463.385 1701422.399 1757210.621 1853566.229 1846403.969 1919621.852 1996287.746 1963917.148 2143688.454 2130044.8 2153850.8 2134074.1 2144871.1 2236234.6 2234814.8
98 1516127 1644691.614 1678248.63 1743390.9 1874117.72 1960731.002 1962654.081 1956194.374 1988095.688 2101747.084 2060071.5 2136123.9 2201521.3 2308928.1 2172790.9 2189378.1
99 1560367.7 1645851.393 1638966.201 1798036.498 1832849.605 1866769.33 2010986.621 2013583.748 2047541.737 2099968.676 2111353 2089976.8 2140859.6 2122978.1 2211630.1 2050130.9
100 1549282 1606819.812 1705484.37 1805093.216 1793062.236 1912534.286 1923801.937 1968802.07 2018335.407 2072767.672 2046267.9 2093921.5 2208909 2070667.3 2161146.6 2226549.7
1525237.8 1602155.532 1668811.679 1743874.915 1804471.917 1863688.769 1930697.772 1975275.732 2015935.226 2054518.151 2089282.5 2105896.8 2136542.9 2139898.3 2138052.6 2131559.9
Order Qty 1750 1850 1950 2050 2150 2250 2350 2450 2550 2650 2750 2850 2950 3050 3150 3250
Profit 1525238 1602156 1668812 1743875 1804472 1863689 1930698 1975276 2015935 2054518 2089283 2105897 2136543 2139898 2138053 2131560
SD 15627 17334 23372 27060 30915 35989 34927 42025 48160 51502 60084 62745 57846 69394 71785 75580

2500000
2089283 2105897 2136543 2139898 2138053 2131560
2015935 2054518
1930698 1975276
2000000 1804472 1863689
1743875
1602156 1668812
1525238
1500000

1000000

500000

15627 17334 23372 27060 30915 35989 34927 42025 48160 51502 60084 62745 57846 69394 71785 75580
0
1750 1850 1950 2050 2150 2250 2350 2450 2550 2650 2750 2850 2950 3050 3150 3250

Profit SD
Rahul Joshi | IMPX14029

Pantaloons Retail
Executive Summary

The case is primarily about trying to maximise profit by generating a simulation model. The
demand pattern of a new apparel is already available, however to account for the varying
demand and hence the fluctuation in profits, the idea is to create a simulation model for the
total sales of the new line of products and ensure that the profit is maximised. The case is of
the retail chain Pantaloons and the line of fashion that is under consideration is called “Gen
Next”

Introduction

Pantaloons retail is planning to introduce a new line of fashion called apparel “Gen Next” in
the winter season for ₹ 1500/- per unit. The demand forecast with its distribution and
standard deviation is known, however, the demand could vary and lead to selling the
merchandize later in sale on discount or then eventually salvage the completely left over
inventory by donating it to an NGO. To ensure that the demand is accurate predicted such
that they can ensure maximum revenue, the case is about predicting the accurate order that
should be placed for the new apparel.

Data Requirement

To understand how much profit will be made two basic parameters of sales revenue and
expenditure will be required. The total break up of data required will be as below:

(1) Maximum retail price of the merchandize under consideration

(2) Demand of the merchandize
(3) If there is unsold inventory it will need to be taken care of through discounts and
salvage. Costs for each of the case will be required.

The Demand is forecasted with mean of 2500 and SD of 750.

Further unsold inventory can be sold at minimum sales price of ₹ 400 or ₹ (1500/n/2)
whichever is higher
Rahul Joshi | IMPX14029

Finally remaining inventory can be given to NGO which will have a net benefit of ₹ 200 on
account of tax benefits

Concept

The basic idea here is to find out the order quantity at which the profit will be maximum, for
this we have been provided the mean demand of 2500 and SD of 750. To better understand
how the demand will behave (which is unpredictable), we will create a data simulation
model at an assumed demand of 3000. Once we create this model we will utilize the same
model to forecast profits for various order quantities from 1750 to 3250. Please refer below
model created in excel:

This data model is created for 100 different demand types, however to better understand
the distribution pattern the demand is further extended to 10000 data points using ‘what if
– data table’ function in excel and generalising it over all different order quantities of 1750
to 3250 within steps of 100. Once this is done the final graph that is achieved is as below:
Rahul Joshi | IMPX14029

From the graph above it is clear that profit increases for order quantity 2950 and above.
Taking into consideration the standard deviation and the profit that can be made, the profit
at 3050 is optimal for ordering.

Deliverables

(1) The simulation model of revenues at each order point

(2) The maximum profit that can be achieved
 Case 4: Walton Bookstore – Calendar Demand Problem
Name: Abhay Mane Roll No. IPMX14001

--------------------------------------------------------------------------------------------------------------------------

Executive Summary
The Walton Bookstore problem is a typical newsvendor problem in operations management
used to determine the optimal inventory levels. It is characterised by the fixed price and
uncertain demand for a perishable product. If the inventory level is x, then each unit of demand
above x is lost in potential sales. This model is also known as the newsvendor
problem or newsboy problem by analogy with the situation faced by a newspaper vendor who
must decide how many copies of the day's paper to stock in the face of uncertain demand and
knowing that unsold copies will be worthless at the end of the day.

Introduction:
A simulation model is a computer model that imitates a real-life situation. It is like other
mathematical models, but it explicitly incorporates uncertainty in one or more input variables.
When we run a simulation, we allow these random input variables to take on various values,
and we keep track of any resulting output variables of interest. In this way, we can see how the
outputs vary as a function of the varying inputs. Simulation models are also useful for
determining how sensitive a system is to changes in operating conditions. For example, the
operations of a supermarket could be simulated. Once the simulation model has been
developed, it could then be run (with suitable modifications) to ask several what-if questions.
For example, if the supermarket experiences a 20% increase in business, what will happen to
the average time customers must wait for service? A huge benefit of computer simulation is
that it enables managers to answer these types of what-if questions without changing (or
building) a physical system. In Spreadsheet simulation modelling, we begin with input variables
and then relate these with appropriate Excel formulas to produce output variables of interest.
The main difference is that simulation uses random numbers to drive the process. These
random numbers are generated with special functions. Each time the spreadsheet
recalculates, all the random numbers change. This provides the ability to model the logical
process once and then use Excel’s recalculation to generate many different scenarios. By
collecting the data from these scenarios, we can see the most likely values of the outputs and
the best-case and worst-case values of the outputs.

Data Requirements:
In August, Walton Bookstore must decide how many of next year’s nature calendars to order.
Each calendar costs the bookstore $7.50 and sells for $10. After January 1, all unsold calendars
will be returned to the publisher for a refund of $2.50 per calendar.

The objective in the case is to determine optimal order quantity that will maximise the profit.

Case 4 | Abhay Mane | IPMX14001 Page 1 of 5

 For this Walton Bookstore case, we need following data:

1. Price, Cost, and refund value of the calendars

2. Type of distribution of probabilities

Probability Distribution of Demand

for Calendars

Cumulative
Probability Demand
Prob.
0.3 0 100
0.2 0.3 150
0.3 0.5 200
0.15 0.8 250
0.05 0.95 300

Concept:

The probability distribution table shown above is a discrete distribution with only five possible
values: 100, 150, 200, 250, and 300. In reality, it is clear that other values of demand are
possible. For example, there could be demand for exactly 187 calendars. In spite of its apparent
lack of realism, we use this discrete distribution for two reasons. First, its simplicity is a nice
feature to get you started with simulation modelling. Second, discrete distributions are often
used in real business simulation models. Even though the discrete distribution is only an
approximation to reality, it can still provide important insights.

 Developing Simulation Model:

For any fixed order quantity, we can show how Excel can be used to simulate 100 replications
(or any other number of replications). Each replication is an independent replay of the events
that occur. To illustrate, suppose we want to simulate profit if Walton orders 200 calendars.
Following figure illustrates the results obtained by simulating 1000 independent replications
for this order quantity:

Case 4 | Abhay Mane | IPMX14001 Page 2 of 5

 1. Inputs: Enter the cost data in the range C4:C6, the probability distribution of demand
in the range F6:H10, and the proposed order quantity, 200, in cell B9.
2. Generate random demand: The key to the simulation is the generation of a customer
demand in column D from a random number generated by the RAND function in
column C and the probability distribution of demand. The interval from 0 to 1 is split
into five segments: 0.0 to 0.3 (length 0.3), 0.3 to 0.5 (length 0.2), 0.5 to 0.8 (length 0.3),
0.8 to 0.95 (length 0.15), and 0.95 to 1.0 (length 0.05). These lengths are the
probabilities of the various demands. Then a demand is associated with each random
number, depending on which interval the random number falls in. For example, if a
random number is 0.5279, this falls in the third interval, so it is associated with the third
possible demand value, 200.

Case 4 | Abhay Mane | IPMX14001 Page 3 of 5

 To implement this procedure, you use a VLOOKUP function based on the range G6:H10.
This table has the cumulative probabilities in column G and the possible demand values
in column H.
3. Revenue: Once the demand is known, the number of calendars sold is the smaller of
the demand and the order quantity.
=Price*MIN(D18,OrderQty)
4. Ordering cost: The cost of ordering the calendars does not depend on the demand; it is
the unit cost multiplied by the number ordered. Calculate this cost in cell F18 with the
formula
=OrderQty*Cost
5. Refund: If the order quantity is greater than the demand, there is a refund of $2.50 for
each calendar left over; otherwise, there is no refund. Therefore, calculate the refund
in cell G18 with the formula
=IF(D18<OrderQty,(OrderQty-D18)*Refund,0)
6. Profit: Calculate the profit in cell G19 with the formula = E18+G18-F18
Results:
Average Profit = $211.25
Maximum Profit = $500.00
 Finding the best ordering quantity:

By using data tables in Excel’s What-if analysis, we can calculate the best ordering quantity that
will give maximum profit.

Looking at the Excel Snapshot above, the ordering quantity of 150 numbers gives the maximum
profit of $288.75. There is a loss for ordering quantities higher than 250 numbers.
 Using a Data Table to Repeat Simulations

The results obtained using the simulation are with 100 data points. We can go one step ahead
and repeat the simulation for another 100 data points, totalling 10000 data points. This will
drive the solution towards more accuracy.

Case 4 | Abhay Mane | IPMX14001 Page 4 of 5

From this snapshot, simulation with 10000 data points reveals that the best ordering quantity
is still 150 numbers giving us profit of $264.11. Once the ordering quantity exceeds 250, there
will be loss to the company.

Deliverables
1. Report on methodology adopted for deciding the best ordering quantity
2. Excel model of calculations

Case 4 | Abhay Mane | IPMX14001 Page 5 of 5

 Case 5: Heavy Duty Company – Corrective and Preventive Maintenance
Name: Abhay Mane Roll No. IPMX14001

--------------------------------------------------------------------------------------------------------------------------

Executive Summary
Preventive maintenance and corrective maintenance costs vary depending on organizations
and their assets, but a cost-benefit analysis shows the way. Asset industries require sustainable
maintenance strategies to stay cost effective and competitive. These maintenance strategies
can be divided into corrective maintenance (CM) and preventive maintenance (PM). Corrective
maintenance identifies and corrects a maintenance fault after it has occurred, while preventive
maintenance is carried out in an interval fashion, intended to prevent maintenance faults from
occurring. Based on their assets and industries, companies may find it more cost effective to
use one over the other. The case here requires us to use simulation technique to determine
the corrective and preventive maintenance costs using normal distribution and random
numbers.

Introduction:
The Heavy-Duty Company has just purchased a large machine for a new production process.
The machine is powered by a motor that occasionally. Therefore, a second standby motor is
kept, and the two motors are rotated in use. The breakdowns always occur on the fourth, fifth
or sixth day that the motor is in use. Fortunately, it takes fewer than three days to overhaul a
motor, so a replacement is always ready. The cost of replacement due to breakdown is
$11000/-.

The preventive maintenance would involve scheduling the motor to be removed and replaced
for an overhaul at a certain time, even if a breakdown has not occurred. The goal is to provide
maintenance early enough to prevent a breakdown. Scheduling the overhaul enables removing
and replacing the motor at a convenient time when the machine is not in use, so no production
is lost. The cost of replacement without breakdown is $6000/-.

Data Requirements:
The objective in the case is to determine if corrective maintenance is cost effective or
preventive maintenance. If the preventive maintenance is cost effective, then on which day
the motor should be replaced to achieve minimum per day cost. To determine that following
data is required:

1. Number of days machine will run with given number of replacements for both the type
of maintenance
2. Cost of replacement for each type of maintenance
3. Cost per day of each type of maintenance

Case 5 | Abhay Mane | IPMX14001 Page 1 of 6

Probability Distribution of the day on which the breakdown will happen:

Day the
Breakdown Cumulative Corresponding
breakdown
Probability Probability Random Nos.
happens
0 0 1,2,3
0.25 0 4 0.00 to 0.2499
0.5 0.25 5 0.25 to 0.7499
0.25 0.75 6 0.75 to 1

Concept:
 Calculation of Maintenance cost with a breakdown (Corrective Maintenance)

For 30 cycles, 30 random numbers are taken as a probability of breakdown for reference.
Based on the probabilities, we got breakdown day and the cumulative days of those 30
cycles calculated. The cost of replacement is $11000/-, with breakdown days available, we
calculated the cumulative cost. With total days and total cost available, cost per day is also
calculated.

Case 5 | Abhay Mane | IPMX14001 Page 2 of 6

 Cumulative cost of maintenance = $ 330,000
Cumulative number of days for 30 breakdowns = 148
The average cost of maintenance per day = $ 2,229.73

 Calculation of Maintenance cost without a breakdown (Preventive Maintenance)

For 30 cycles, 30 random numbers are taken as a probability of breakdown for reference. Based
on the probabilities, we got breakdown days. First the preventive maintenance was calculated
assuming maintenance is done every 4th day. If the breakdown day is less than or on 4th day,
maintenance cost should be breakdown cost which is $11000/-. However, if breakdown day is
more than replacement day which is 4th day, the maintenance cost will be replacement cost
without breakdown which is $6000/-. With cost of maintenance available cumulative cost and
cumulative days is calculated and cost per day is also calculated.

For other days, either same method can be repeated, or data table can be used to generate
more data with different days of preventive maintenance. With average cost per day calculated
above for 4th day maintenance as a reference. With no of days in rows, and average table
being 4th day’s average, 4 will be the row input cell of data table and column input cell will be
blank. With this we got the additional data for all the days. With average of all those we got
average cost per day for each of 3rd, 4th, 5th, and 6th day preventive maintenance.

Inputs for the Simulation:

Case 5 | Abhay Mane | IPMX14001 Page 3 of 6

Simulation:

Total cumulative cost of maintenance without breakdown = $ 210,000

Total number of days for 30 breakdowns = 120

Average cost of maintenance per day = $ 1,750

The above figures are achieved for 30 breakdowns. To make our simulation more accurate, we
need more data. For this purpose, we will make use of data tables in Excel. We will use 30 more
data points, totalling our total data to 900 points.

Case 5 | Abhay Mane | IPMX14001 Page 4 of 6

 Preventive Maintenance Cost
$2,500.0
$2,215.1
$2,045.6
$2,000.0 $1,831.9

$1,500.0

$1,000.0

$500.0

$0.0
4 5 6
Day of maintenance

Case 5 | Abhay Mane | IPMX14001 Page 5 of 6

From the data table, it is evident that if the Heavy duty Company conducts its preventive
maintenance activities on every 4th Day irrespective of the breakdown, the company will be
successful in minimising the total cost of maintenance.
Cost of Corrective maintenance = $ 2,229.73
Cost of Preventive maintenance = $ 1,750

Recommendation
The Heavy-duty Company must adopt preventive maintenance practices as it gives 21.5%
reduction in maintenance costs. Moreover, they should carry out the maintenance activities
on every 4th day under the preventive maintenance schedule.

Case 5 | Abhay Mane | IPMX14001 Page 6 of 6

 Case 6: Pantaloon Retail
Name: Abhay Mane Roll No. IPMX14001

--------------------------------------------------------------------------------------------------------------------------

Executive Summary
The case is primarily about maximising the profit by generating a simulation model. The
demand pattern of a new apparel is required to be generated using random numbers and
associating those random numbers to the demand as demand is normally distributed.
However, to account for the varying demand and hence the fluctuation in profits, the idea is
to create a simulation model for the total sales of the new line of products and ensure that the
profit is maximised. The case is of the retail chain Pantaloons and the line of fashion that is
under consideration is called “Gen Next”

Introduction:
Pantaloons retail is planning to introduce a new line of fashion called apparel “Gen Next” in
the winter season for ₹ 1500/- per unit. The demand forecast with its distribution and standard
deviation is known, however, the demand could vary and lead to selling the merchandize later
in sale on discount or then eventually salvage the completely left-over inventory by donating
it to an NGO. To ensure that the demand is accurate predicted such that they can ensure
maximum revenue, the case is about predicting the accurate order that should be placed for
the new apparel

Data Requirements:
To understand how much profit will be made two basic parameters of sales revenue and
expenditure will be required. The total break-up of data required will be as below:

(1) Maximum retail price of the merchandize under consideration

(2) Demand of the merchandize
(3) If there is unsold inventory it will need to be taken care of through discounts and
salvage. Costs for each of the case will be required.

The Demand is forecasted with mean of 2500 and SD of 750.

Case 6 | Abhay Mane | IPMX14001 Page 1 of 6

Further unsold inventory can be sold at minimum sales price of ₹ 400 or ₹ (1500 - n/2)
whichever is higher.

Finally remaining inventory can be given to NGO which will have a net benefit of ₹ 200 on
account of tax benefits.

Concept:
 Calculation of Maintenance cost with a breakdown (Corrective Maintenance)

The basic idea here is to find out the order quantity at which the profit will be maximum, for
this we have been provided the mean demand of 2500 and SD of 750. To better understand
how the demand will behave (which is unpredictable), we will create a data simulation model
at an assumed demand of 3000. Once we create this model, we will utilize the same model to
forecast profits for various order quantities from 1750 to 3250. Please refer below model
created in excel.

Inputs for the Simulation:

The simulation model is created for 33 different demands using random numbers. The first set
of random numbers are used for understanding the uncertainty of the demand. The second
set of random numbers are used for understanding the uncertainty of discounted sales at
Pantaloon. Since, random numbers represent the uncertainty and hence the probability, we
can use them to calculate demand in numbers by using inverse normal distribution function in
Excel.

Demand = NORM.INV (Random number, Mean, Standard Deviation)

Case 6 | Abhay Mane | IPMX14001 Page 2 of 6

Output of the Simulation:

As it can be seen from the table above, we have made use of 33 data points using random
numbers. We have also created additional columns such as demand, leftover stock, discount
price, discounted sales, final leftover sales, sales revenues, discounted sales revenues, charity
revenues, cost and then profit.

In case of charity revenue, Pantaloon donates the final left-over stock to NGO at and incurs
additional cost of ₹ 50 per unit for the donating the left-over items. At the same time,
Pantaloon gets the tax benefit of ₹ 250 per unit for the philanthropic cause. So, there is net
income of ₹ 200 per unit by donating the left-over units. The same is considered as charity
revenue.

From the simulation, we can see that the average profit for 33 random demands is ₹
21,60,045/-.

We can similarly project the average profits for different demands as shown in the following
snapshot taken from Excel. We have used data tables for calculating the average profits for
different demands.

Case 6 | Abhay Mane | IPMX14001 Page 3 of 6

 Demand Versus Profit
₹ 30,00,000

₹ 25,00,000

₹ 20,00,000

₹ 15,00,000

₹ 10,00,000

₹ 5,00,000

₹0
1750 1800 1850 1900 1950 2000 2050 2750 2800 2850 2900 2950 3000 3050 3100 3150 3200 3250

As it can be seen from the chart above, the average profits are higher for demands greater
than 2750 units.

Case 6 | Abhay Mane | IPMX14001 Page 4 of 6

 To validate the simulation further, we need to consider more data points as far as demand is
concerned. This scenario can be tested using data tables in Excel. The following snapshot
depicts the data table created for further analysing the average profit.

Profit and Standard Deviation versus Demand

₹ 25,00,000

₹ 20,00,000

₹ 15,00,000

₹ 10,00,000

₹ 5,00,000

₹0
1750
1850
1950
2050
2150
2250
2350
2450
2550
2650
2750
2850
2950
3050
3150
3250
3350
3400
3450
3500
3550
3600
3650
3700
3750
3800
3850
3900
3950
4000
4050

Average SD

Case 6 | Abhay Mane | IPMX14001 Page 5 of 6

From the graph above, the profit increases for order quantity 2550 and above. Taking into
consideration the standard deviation and the profit that can be made, the profit at 3150 is
optimal for ordering.

Recommendation
The Pantaloon retail must order the quantities greater than 2550 for maximising the profit.
The average profit would be greater than ₹ 20,00,000/-.

Case 6 | Abhay Mane | IPMX14001 Page 6 of 6