.

SLIDES
.
. BY
.
.
.
.
John Loucks
.
. St. Edward’s Univ.
.
.
.

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 Chapter 16
Simulation

● Simulation Modeling
● Random Variables and Pseudo-Random
Numbers
● Time Increments
● Experimental Design
● Simulation Applications
● Computer Implementation
● Verification and Validation
● Advantages and Disadvantages of Using
Simulation

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 Simulation Modeling

● Simulation is one of the most frequently

employed management science techniques.
● It is typically used to model random processes
that are too complex to be solved by
analytical methods.
● One begins a simulation by developing a
mathematical statement of the problem.
● Some input values for a simulation model are
constants and are referred to as the
parameters of the model.
● Other inputs are not known with certainty and
are considered probabilistic inputs.

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 What-If Analysis

● Risk analysis is the process of predicting the

outcome of a decision in the face of
uncertainty.
● One approach to risk analysis is called what-if
analysis.
● A what-if analysis involves generating values
for the probabilistic inputs and computing the
resulting value for the output.
● The worst-case scenario can be examined by
using the most pessimistic input values, and
the best-case scenario can be studied using
the most optimistic input values.

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 Random Variables

● Random variable values are utilized in the

model through a technique known as Monte
Carlo simulation.
● Each random variable is mapped to a set of
numbers so that each time one number in that
set is generated, the corresponding value of
the random variable is given as an input to the
model.
● The mapping is done in such a way that the
likelihood that a particular number is chosen is
the same as the probability that the
corresponding value of the random variable
occurs.
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 Pseudo-Random Numbers

● Because a computer program generates

random numbers for the mapping according to
some formula, the numbers are not truly
generated in a random fashion.
● However, using standard statistical tests, the
numbers can be shown to appear to be drawn
from a random process.
● These numbers are called pseudo-random
numbers.
● In Excel, a value can be obtained for a
probabilistic input that is normally distributed
using the formula:
=NORMINV(RAND(),Mean, Standard
Deviation)
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 Time Increments

● In a fixed-time simulation model, time

periods are incremented by a fixed amount.
For each time period a different set of data
from the input sequence is used to calculate
the effects on the model.
● In a next-event simulation model, time
periods are not fixed but are determined by
the data values from the input sequence.

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 Experimental Design

● Experimental design is an important

consideration in the simulation process.
● Issues such as the length of time of the
simulation and the treatment of initial data
outputs from the model must be addressed
prior to collecting and analyzing output data.
● Normally one is interested in results for the
steady state (long run) operation of the system
being modeled.
● The initial data inputs to the simulation
generally represent a start-up period for the
process and it may be important that the data
outputs for this start-up period be neglected
for predicting this long run behavior.

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 Experimental Design

● For each policy under consideration by the

decision maker, the simulation is run by
considering a long sequence of input data
values (given by a pseudo-random number
generator).
● Whenever possible, different policies should be
compared by using the same sequence of
input data.

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 Simulation Applications

● New Product Development

● The objective of this simulation is to
determine the probability that a new product
will be profitable.
● A model is developed relating profit (the
output measure) to various probabilistic
inputs such as demand, parts cost, and labor
cost.
● The only controllable input is whether to
introduce the product.
● A variety of possible values will be generated
for the probabilistic inputs, and the resulting
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 Simulation Applications

● Airline Overbooking
● The objective of this simulation is to
determine the number of reservations an
airline should accept for a particular flight.
● A simulation model is developed relating
profit for the flight to a probabilistic input, the
number of passengers with a reservation who
show up and use their reservation, and a
controllable input, the number of reservations
accepted for the flight.
● For each selected value for the controllable
input, a variety of possible values will be
generated for the number of passengers who
show up, and the resulting profit can be
computed.
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 Simulation Applications

● Inventory Policy
● The objective of this simulation is to choose
an inventory policy that will provide good
customer service at a reasonable cost.
● A model is developed relating two output
measures, total inventory cost and the service
level, to probabilistic inputs, such as product
demand and delivery lead time from vendors,
and controllable inputs, such as the order
quantity and the reorder point.
● For each setting of the controllable inputs, a
variety of possible values would be generated
for the probabilistic inputs, and the resulting
cost and service levels would be computed.

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 Simulation Applications

● Traffic Flow
● The objective of this simulation is to
determine the effect of installing a right turn
signal on the flow of traffic through a busy
intersection.
● A model is developed relating waiting time for
vehicles to get through the intersection to
probabilistic inputs such as the number of
vehicle arrivals and the fraction that want to
make a right turn, and controllable inputs such
as the length of time the right turn signal is
on.
● For each setting of the controllable inputs,
values would be generated for the
probabilistic inputs, and the resulting vehicle
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 Simulation Applications

● Waiting Lines
● The objective of this simulation is to
determine the waiting times for customers at
a bank’s automated teller machine (ATM).
● A model is developed relating customer
waiting times to probabilistic inputs such as
customer arrivals and service times, and a
controllable input, the number of ATM
machines installed.
● For each value of the controllable input (the
number of ATM machines), a variety of values
would be generated for the probabilistic inputs
and the customer waiting times would be
computed.

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 Example: Dynogen, Inc.

The price change of shares of Dynogen,

Inc.
has been observed over the past 50 trades.
The
frequency distribution is as follows:
Price Change Number of Trades
-3/8 4
-1/4 2
-1/8 8
0 20
+1/8 10
+1/4 3
+3/8 2
+1/2 1
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 Example: Dynogen, Inc.

● Relative Frequency Distribution and

Random Number Mapping
Price Change Relative Frequency Random
Numbers
-3/8 .08 0.00 but
less than 0.08
-1/4 .04 0.08
but less than 0.12
-1/8 .16 0.12
but less than 0.28
0 .40 0.28
but less than 0.68
+1/8 .20 0.68
but less than 0.88
+1/4 Learning. All Rights Reserved. .06
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 Example: Dynogen, Inc.

If the current price per share of

Dynogen is
23, use random numbers to simulate the
price per
share over the next 10 trades.
Use the following stream of random
numbers:

.21, .84, .07, .30, .94, .57, .57, .19, .8

4, .84

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 Example: Dynogen, Inc.

● Simulation Worksheet
Trade Random Price Stock
Number Number Change Price
1 .21 -1/8 22
7/8
2 .84 +1/8 23
3 .07 -3/8 22
5/8
4 .30 0 22
5/8
5 .94 +3/8 23
6 .57 0 23
7 .57 0 23
8 .19 -1/8 22
7/8
9 .84 +1/8 23
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 Example: Dynogen, Inc.

● Theoretical Results and Observed Results

Based on the probability distribution, the
expected price change per trade can be
calculated by:
(.08)(-3/8) + (.04)(-1/4) + (.16)(-1/8) + (.40)
(0)
+ (.20)(1/8) + (.06)(1/4) + (.04)(3/8) + (.02)
(1/2) = +.005
The expected price change for 10 trades
is (10)(.005) = .05. Hence, the expected stock
price after 10 trades is 23 + .05 = 23.05.
Compare this ending price with the
spreadsheet
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 Inventory Example: Shelly’s
Supermarket
Shelly's Supermarket has just installed a
postage stamp vending machine. Based on one
month of operation, Shelly's estimates the
number of postage stamps sold per day can be
approximated by the following distribution:

Number Sold Per Day Probability

20
.10
30
.15
40
.20
50
.25
60
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 Inventory Example: Shelly’s
Supermarket
Shelly's makes a $.04 profit per postage
stamp. The
vending machine holds 230 stamps and it costs
Shelly's
$4.00 in labor to fill the machine.
Shelly's will fill the machine at the
beginning of
every 5th day. Conduct a 20-day simulation and
determine the expected profit per day.
Assume the machine must be filled on the
first day.

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 Inventory Example: Shelly’s
Supermarket
The set of random numbers corresponding
to each sales level is:
Number Sold
Random
Per Day Probability
Numbers
20 .10 .00
but less than .10
30 .15 .10 but less
than .25
40 .20 .25 but less
than .45
50 .25 .45 but less
than .70
60 .20 .70 but less
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 Inventory Example: Shelly’s
Supermarket
Filling Every 5th Number Profit
Day of Stamps From
Cost of
Random Left In Sale of Refilling
Daily
Day Number Demand Machine Stamps Machine
Profit
1 .71 60 170 2.40
4.00 -1.60
2 .95 70 100 2.80
-- 2.80
3 .83 60 40 2.40
-- 2.40
4 .44 40 0 1.60
-- Cengage Learning.
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 Inventory Example: Shelly’s
Supermarket
Filling Every 5th Number Profit
Day of Stamps From
Cost of
Random Left In Sale of Refilling
Daily
Day Number Demand Machine Stamps Machine
Profit
11 .75 60 170 2.40
4.00 -1.60
12 .12 30 140 1.20
-- 1.20
13 .03 20 120 .80
-- .80
14 .59 50 70 2.00
-- Cengage Learning.
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24
 Inventory Example: Shelly’s
Supermarket
● Summary: Filling Every 5th Day
Total profit for 20 days = $19.20
Expected profit per day = 19.20/20 =
$0.96

Would filling every 4th day be more

profitable?

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 Inventory Example: Shelly’s
Supermarket
Filling Every 4th Number Profit
Day of Stamps From
Cost of
Random Left In Sale of Refilling
Daily
Day Number Demand Machine Stamps Machine
Profit
1 .71 60 170 2.40
4.00 -1.60
2 .95 70 100 2.80
-- 2.80
3 .83 60 40 2.40
-- 2.40
4 .44 40 0 1.60
-- Cengage Learning.
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26
 Inventory Example: Shelly’s
Supermarket
Filling Every 4th Number Profit
Day of Stamps From
Cost of
Random Left In Sale of Refilling
Daily
Day Number Demand Machine Stamps Machine
Profit
11 .75 60 110 2.40
-- 2.40
12 .12 30 80 1.20
-- 1.20
13 .03 20 210 .80
4.00 -3.20
14 .59 50 160 2.00
-- Cengage Learning.
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 Inventory Example: Shelly’s
Supermarket
● Summary: Filling Every 4th Day
Total profit for 20 days = $17.60
Expected profit per day = 17.60/20 =
$0.88

The simulation results suggest that Shelly

should fill the stamp machine very 5th day,
rather than every 4th day.

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 Example: Mark Koff’s Process

Mark Koff is a specialist at repairing large

metal-
cutting machines that use laser technology. His
repair
territory consists of the cities of Austin, San
Antonio,
and Houston. His day-to-day repair assignment
locations can be modeled as a Markov process.
The
transition matrix is shown on the next slide.

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 Example: Mark Koff’s Process

This Day’s Next Day's

Location
Location Austin San Antonio
Houston
Austin .60 .15
.25
San Antonio .20 .75
.05
Houston .15 .05
.80

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 Example: Mark Koff’s Process

● Random Number Mappings

Currently in Currently in Currently

in
Austin San Antonio
Houston
Next-Day Random Next-Day Random Next-Day
Random
Location Numbers Location Numbers Location
Numbers
Austin .00 < .60 Austin .00 < .20 Austin
.00 < .15
San Ant. .60 < .75 San Ant. .20 < .95 San Ant.
.15 < .20
Houston .75 < 1.0 Houston .95 < 1.0 Houston
.20Cengage
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 Example: Mark Koff’s Process

Assume Mark is currently in Houston.

Simulate where Mark will be over the next 16
days.
What percentage of time will Mark be in each of
the
three cities?
Use the following random numbers:
.93, .63, .26, .16, .21, .26, .70, .55,
.72, .89, .49, .64, .91, .02, .52, .69

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 Example: Mark Koff’s Process

● Simulation Worktable

Starting in Houston
Random Day's Random
Day's
Day Number Location Day Number
Location
1 .93 Houston 9
.72 San Ant.
2 .63 Houston 10
.89 San Ant.
3 .26 Houston 11
.49 San Ant.
4 .16 San Ant. 12 .64
San Ant.
5 .21 San Ant. 13 .91
San
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 Example: Mark Koff’s Process

Repeat the simulation with Mark currently

in Austin. Use the following random numbers:
.13, .08, .60, .13, .68, .40, .40, .27,
.23, .64, .36, .56, .25, .88, .18, .74
Compare the percentages with those
found with Mark starting in Houston.

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 Example: Mark Koff’s Process

● Simulation Worksheet
Starting in Austin
Random Day's
Random Day's
Day Number Location Day Number
Location
1 .13 Austin 9 .23
San Ant.
2 .08 Austin 10
.64 San Ant.
3 .60 San Ant. 11 .36
San Ant.
4 .13 Austin 12 .56
San Ant.
5 .68 San Ant. 13 .25
San Ant.
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35
 Example: Mark Koff’s Process

● Simulation Summary

Starting in Houston
Austin = 2/16 = 12.50%
San Antonio = 11/16 = 68.75%
Houston = 3/16 = 18.75%
Starting in Austin
Austin = 4/16 = 25%
San Antonio = 12/16 = 75%
Houston = 0/16 = 0%

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 Waiting Line Example: Wayne Airport

Wayne International Airport primarily

serves
domestic air traffic. Occasionally, however, a
chartered plane from abroad will arrive with
passengers bound for Wayne's two great
amusement
parks, Algorithmland and Giffith's Cherry
Preserve.
Whenever an international plane arrives
at the airport the two customs inspectors
on duty set up
operations to process the passengers.

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 Waiting Line Example: Wayne Airport

Incoming passengers must first have

their
passports and visas checked. This is handled
by one
inspector. The time required to check a
passenger's
passports and visas can be described by the
probability distribution on the next slide.

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 Waiting Line Example: Wayne Airport

Time Required to
Check a Passenger's
Passport and Visa Probability
20 seconds .20
40 seconds .40
60 seconds .30
80 seconds .10

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 Waiting Line Example: Wayne Airport

After having their passports and visas

checked,
the passengers next proceed to the second
customs
official who does baggage inspections.
Passengers form
a single waiting line with the official inspecting
baggage on a first come, first served basis. The
time
required for baggage inspection follows the
probability
distribution shown on the next slide.

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 Waiting Line Example: Wayne Airport

Time Required For

Baggage Inspection Probability
No Time
.25
1 minute .60
2 minutes .10
3 minutes .05

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 Waiting Line Example: Wayne Airport

● Random Number Mapping

Time Required to
Check a Passenger's
Random
Passport and Visa Probability
Numbers
20
seconds .20 .00 < .20
40 seconds .40
.20 < .60
60 seconds .30
.60 < .90
80 seconds .10
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 Waiting Line Example: Wayne Airport

● Random Number Mapping

Time Required For

Random
Baggage Inspection Probability
Numbers
No Time .25 .00
< .25
1 minute .60
.25 < .85
2
minutes .10 .85 < .95
3
minutes .05 .95 < 1.0
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 Waiting Line Example: Wayne Airport

● Next-Event Simulation Records

For each passenger the following

information must be recorded:
• When his service begins at the passport
control inspection
• The length of time for this service
• When his service begins at the baggage
inspection
• The length of time for this service

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 Waiting Line Example: Wayne Airport

● Time Relationships

Time a passenger begins service

by the passport inspector
= (Time the previous passenger started passport
service)
+ (Time of previous passenger's passport
service)

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 Waiting Line Example: Wayne Airport

● Time Relationships
Time a passenger begins service
by the baggage inspector
( If passenger does not wait in line for baggage
inspection)
= (Time passenger completes
service
with the passport control
inspector)
(If the passenger does wait in line for baggage
inspection)
= (Time previous passenger
completes
service
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 Waiting Line Example: Wayne Airport

● Time Relationships

Time a customer completes service

at the baggage inspector
= (Time customer begins service with baggage
inspector) + (Time required for baggage
inspection)

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 Waiting Line Example: Wayne Airport

A chartered plane from abroad lands at

Wayne
Airport with 80 passengers. Simulate the
processing
of the first 10 passengers through customs.
Use the following random numbers:
For passport control:
.93, .63, .26, .16, .21, .26, .70, .55, .72,
.89
For baggage inspection:
.13, .08, .60, .13, .68, .40, .40, .27, .23,
.64
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 Waiting Line Example: Wayne Airport

● Simulation Worksheet (partial)

Passport Control Baggage
Inspections
Pass. Time Rand. Service Time Time Rand.
Service Time
Num Begin Num. Time End Begin Num. Time
End
1 0:00 .93 1:20 1:20 1:20 .13
0:00 1:20
2 1:20 .63 1:00 2:20 2:20 .08
0:00 2:20
3 2:20 .26 :40 3:00 3:00 .60
1:00 4:00
4 3:00 .16 :20 3:20
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 Waiting Line Example: Wayne Airport

● Simulation Worksheet (continued)

Passport Control Baggage
Inspections
Pass. Time Rand. Service Time Time Rand.
Service Time
Num Begin Num. Time End Begin Num. Time
End
6 4:00 .26 :40 4:40 5:00 .40
1:00 6:00
7 4:40 .70 1:00 5:40 6:00 .40
1:00 7:00
8 5:40 .55 :40 6:20 7:00 .27
1:00 8:00
9 6:20 .72 1:00 7:20
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 Waiting Line Example: Wayne Airport

● Explanation
For example, passenger 1 begins being
served by the passport ontrol inspector
immediately. His service time is 1:20 (80
seconds) at which time he goes immediately to
the baggage inspector who waves him through
without inspection.
Passenger 2 begins service with passport
inspector 1:20 minutes (80 seconds) after
arriving there (as this is when passenger 1 is
finished) and requires 1:00 minute (60 seconds)
for passport inspection. He is waved through
baggage inspection as well.
This process continues in this manner.
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 Waiting Line Example: Wayne Airport

● Question
How long will it take for the first 10
passengers to clear customs?
● Answer
Passenger 10 clears customs after 9
minutes and 20 seconds.

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 Waiting Line Example: Wayne Airport

● Question
What is the average length of time a
customer waits before having his bags
inspected after he clears passport control?
How is this estimate biased?

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 Waiting Line Example: Wayne Airport

● Answer
For each passenger calculate his waiting
time:
(Baggage Inspection Begins) - (Passport
Control Ends)
= 0+0+0+40+0+20+20+40+40+0 =
120 seconds.
120/10 = 12 seconds per
passenger
This is a biased estimate because we
assume that the simulation began with the
system empty. Thus, the results tend to
underestimate
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 Other Simulation Issues

● Computer Implementation
● Verification and Validation
● Advantages and Disadvantages
of Using Simulation

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 Computer Implementation

● Spreadsheet Add-Ins
● The use of spreadsheets for simulation has
grown rapidly in recent years.
● Two popular spreadsheet add-in packages
are Crystal Ball and @Risk.
● Spreadsheets are generally limited to
smaller, less complex systems.

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 Computer Implementation

● Special-Purpose Simulation Packages

● A variety of special-purpose simulation
packages are available, including GPSS,
SIMSCRIPT, SLAM, and Arena.
● These packages have built-in simulation
clocks, simplified methods for generating
probabilistic inputs, and procedures for
collecting and summarizing the simulation
output.
● These packages enable analysts to simplify
the process of developing and implementing
the simulation model.

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 Computer Implementation

● General-Purpose Computer Programming

Languages
● Simulation models can also be developed
using programming languages such as
BASIC, FORTRAN, PASCAL, C, and C++.
● The disadvantage of using these languages
is that special simulation procedures are not
built in.
● Usually, it takes many lines of computer code
written in, say, BASIC, to perform the tasks
performed by a single command in a special-
purpose package.

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 Model Verification and Validation

● Verification and validation of both the model

and the method used by the computer to carry
out the calculations is extremely important.
● Models which do not reflect real world
behavior cannot be expected to generate
meaningful results.
● Likewise, errors in programming can result in
nonsensical results.

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 Model Verification and Validation

● Validation is generally done by having an

expert review the model and the computer
code for errors.
● Ideally, the simulation should be run using
actual past data.
● Predictions from the simulation model should
be compared with historical results.

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 Advantages of Using Simulation

● Among the advantages of simulation is the

ability to gain insights into the model solution
which may be impossible to attain through
other techniques.
● Also, once the simulation has been developed,
it provides a convenient experimental
laboratory to perform "what if" and sensitivity
analysis.

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 Disadvantages of Using Simulation

● A large amount of time may be required to

develop the simulation.
● There is no guarantee that the solution
obtained will actually be optimal.
● Simulation is, in effect, a trial and error
method of comparing different policy inputs.
● It does not determine if some input which was
not considered could have provided a better
solution for the model.

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 End of Chapter 16

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