Ong, Camila Mae S.

Production and Operations Management

BSA 3-8 Prof. Jocelyn Villareal

MODULE F : MODELING WITH SIMULATION

Simulation is the attempt to duplicate the features, appearance, and characteristics of a

real system, usually via a computerized model.

The idea behind simulation is threefold:

1. To imitate a real world situation mathematically

2. Then to study its properties and operating characteristics
3. Finally, to draw conclusion and make decisions based on the results of the
simulation

In this way, a real life system need to be touched until the advantages and
disadvantages of a major policy decision are first measured on the model. To use
simulation, an OM manager should:

1. Define the problem

2. Introduce the important variables associated with the problem
3. Construct a numerical model
4. Set up possible courses of action for testing by specifying values of variables
5. Run the experiment
6. Consider the results
7. Decide what course of action to take

Advantages and Disadvantages of Simulation:

Advantages:

1. It can be used to analyze large and complex real-world situations that cannot be
solved by conventional operations management models.
2. Real world complications can be included that most OM models cannot permit.
3. Time compression is possible
4. Simulation allows what if type of questions.
5. Simulations do not interfere with real world system.

Disadvantages:

1. Good simulation models can take a long time to develop.

 2. It is a repetitive approach that may produce different solutions in repeated runs. It
does not generate optimal solutions to problems.
3. Managers must generate all of the conditions and constraints for solutions that
they want to examine
4. Each simulation model is unique.

Monte Carlo Simulation

A simulation technique that uses random elements when chance exists in their
behavior.

The basis of Monte Carlo simulation is experimentation on chance elements by means

of random sampling.

1. Setting up a probability distribution for important variables

The basic idea in the Monte Carlo simulation is to generate values for the
variables making up the model under study. In real-world systems, a lot of
variables are probabilistic in nature. To name a few: inventory demand;
lead time; for orders to arrive; times between breakdowns.
One common way to establish a probability distribution for a given variable
is to examine historical outcomes. We can find the probability, or relative
frequency, for each possible outcome of a variable by dividing the
frequency of observation by the total number of observations.

2. Building a cumulative probability distribution for each variable

Cumulative probability distribution the accumulation of individual
probabilities of a distribution.

(1) (2) (3) (4)

Probability of Cumulative
Demand for tires Frequency
Occurrence Probability
0 10 10/200 = .05 .05
1 20 20/200 = .10 .15
2 40 40/200 = .20 .35
3 60 60/200 = .30 .65
4 40 40/200 = .20 .85
5 30 30/200 = .15 1.00
200 days 200/200 = 1.00

3. Establishing an interval of random numbers for each variable

Once we have established a cumulative probability distribution for each
variable in the simulation, we must assign asset of number to represent
each possible outcome.
Random- number intervals a set of numbers to represent each possible
value or outcome in a computer simulation

4. Generating random numbers

Random numbers may be generated for simulation problems in two ways.
If the problem is large and the process under study involves many
simulation trials, computer programs are available to generate the needed
random numbers. If the simulation is being done by hand, the numbers
may be selected from a table of random digits.

5. Actually simulating a series of trials