Assignment 4: Simulation

Due: 23:59 November 17 (Sunday), via Moodle

Problem 1 (Dr. Greenberg)

Dr. Mark Greenberg practices dentistry in Topeka, Kansas. Greenberg tries hard to schedule
appointments so that patients do not have to wait beyond their appointment time. His schedule for Mar
20th is shown in the following table.

Scheduled Appointment Time Expected Time Needed

Adams 09:30 a.m. 15
Brown 09:45 a.m. 20
Crawford 10:15 a.m. 15
Dannon 10:30 a.m. 10
Erving 10:45 a.m. 30
Fink 11:15 a.m. 15
Graham 11:30 a.m. 20
Hinkel 11:45 a.m. 15

Unfortunately, not every patient arrives exactly on schedule, and expected examination times are just
that---expected. Some examinations take longer than expected, and some take less time. Greenberg’s
experience dictates the following:

(a) 10% of the patients will be 20 minutes early.

(b) 20% of the patients will be 10 minutes early.
(c) 50% of the patients will be on time.
(d) 15% of the patients will be 10 minutes late.
(e) 5% of the patients will be 20 minutes late.

He further estimates that

(a) 15% of the time, he will finish in 20% less time than expected.
(b) 50% of the time, he will finish in the expected time.
(c) 25% of the time, he will finish in 20% more time than expected.
(d) 10% of the time ,he will finish in 40% more time than expected.

Dr. Greenberg has to leave by 12:15 p.m. to catch a flight. Assuming that he is ready to start his work at
9:30 a.m. and that patients are treated in the order of their scheduled appointments (even if one late
patient arrives before an early one), what is the probability that he will be able to make the flight?
Please build an Excel model to solve the problem and estimate the probability by repeating the
simulation 1,000 times.

Solution

The estimated probability of leaving before 12:15pm is about 40% after 1,000 simulations.
Problem 2 (Happy Electronics)
Happy Electronics is developing a new product with a unit profit margin (i.e., the difference between the
unit selling price and unit cost) of $5. The development time 𝑇 is a random variable that follows an
exponential distribution with a parameter 𝜆 = 𝐾, where 𝐾 is the total investment in this R&D project in
million $. For example, if the total investment is $5 million, then 𝜆 = 5. The demand for the product, D,
will be a function of the development time: the later the product is introduced, the smaller the demand.
In particular, the demand
10,000,000
𝐷= .
1 + √𝑇
The company is now comparing two investment plans: $2 million versus $5 million. To maximize the
total profit, which plan is better? Solve this problem by building a simulation model in Excel and
repeating the simulation 1,000 times.

Solution
$"#,###,###
The total profit = 𝐷 × $5 − 𝐾 × $1,000,000 = %&√(
− 𝐾 × $1,000,000.

We can simulate the total profit for the two investment plans 1,000 times and get the following result.

Investment Plan $2 million $5 million

Average Total Profit (in million $) About 29.9 About 31.5

Hence, investing $5 million is better.

Problem 3 (Dumoor Appliance)
Dumoor Appliance Center sells and services several brands of major appliances. Past sales for a
particular model of the refrigerator have resulted in the following probability distribution for demand:

Demand per Week 0 1 2 3 4

Probability 0.20 0.40 0.20 0.15 0.05
The replenishment lead time, in weeks, is described by the following distribution:

Lead Time (weeks) 1 2 3

Probability 0.15 0.35 0.50
Based on cost considerations as well as storage space, the company has decided to order 10 units each
time. The shipping cost for each order is $30. The holding cost is $5 per week per unit that is left in
inventory at the end of the week. The stock-out cost is $40 per unit. The company has decided to place
an order whenever there are only 2 refrigerators left at the end of the week. No order can be placed
when refrigerators are being shipped on the way. For example, if the lead time is 1 week, the shipment
will arrive at the beginning of week 7 when order was placed at the end of week 5.

Simulate 10 weeks of operation for Dumoor Appliance by hand, assuming there are currently 5 units in
inventory. Use the table of random numbers provided below to generate demand and lead time values.
Make sure to use the random numbers column by column, starting at the top of the first column, for this
simulation (In other words, the order of 52, 37, 82, … ). Do NOT reserve/pick a random number when
simulation is not needed. (i.e. When order placing is not needed, we do NOT need to reserve/pick a
random number for the lead time)

Calculate the average ordering (shipping) cost per week, the average holding cost per week, and the
average stock-out cost per week.

You may find the table below useful.

Week Available Demand Sales Lost Ending Place Lead

Inventory Sales Inventory Order Time
1
 Random Number Table

52 90 50 88 53 30 10 47 99 37
37 06 28 02 74 35 24 03 29 60
82 57 68 28 05 94 03 11 27 79
07 02 36 49 71 99 32 10 75 21
98 94 90 36 06 78 23 67 89 85
96 52 62 87 49 56 59 23 78 71
33 69 27 21 11 60 95 89 68 48
50 33 50 95 13 44 34 62 64 39
88 32 18 50 62 57 34 56 62 31
43 30 36 24 69 82 51 74 30 85

Solution
Demand per Week 0 1 2 3 4
Probability 0.20 0.40 0.20 0.15 0.05
RN Interval [01,20] [21,60] [61,80] [81,95] [96,00]
The replenishment lead time, in weeks, is described by the following distribution:
Lead Time (weeks) 1 2 3
Probability 0.15 0.35 0.50
RN Interval [01,15] [16,50] [51,00]
Week Order Total R.N. Demand Sales Lost Ending Place R.N. Lead
Received Available Sales Inventory Order Time
1 0 5 52 1 1 0 4 No - -
2 0 4 37 1 1 0 3 No - -
3 0 3 82 3 3 0 0 Yes 7 1
4 0 0 98 4 0 4 0 No - -
5 10 10 96 4 4 0 6 No - -
6 0 6 33 1 1 0 5 No - -
7 0 5 50 1 1 0 4 No - -
8 0 4 88 3 3 0 1 Yes 43 2
9 0 1 90 3 1 2 0 No - -
10 0 0 6 0 0 0 0 No - -
Average ordering cost/week = $6 per week.
Average holding cost/week = $11.5 per week.
Average stock-out cost/week = $24 per week.