1. Chapter 21 Simulation to accompany
Operations Research: Applications and Algorithms
4th edition by Wayne L. Winston
Copyright (c) 2004 Brooks/Cole, a division of Thomson Learning, Inc.

2. Description
Simulation is a very powerful and widely used management science technique for the analysis and study of complex systems.
Simulation may be defined as a technique that imitates the operation of a real-world system as it evolves over time. This is normally done by developing a simulation model. A simulation model usually takes the form of a set of assumptions about the operation of the system, expressed as mathematical or logical relations between the objects of interest in the system.
Simulation has its advantages and disadvantages. We will focus our attention on simulation models and the simulation technique.

3. 21.1 Basic Terminology
In most simulation studies, we are concerned with the simulation of some system.
Thus, in order to model a system, we must understand the concept of a system.
Definition: A system is a collection of entities that act and interact toward the accomplishment of some logical end.
Systems generally tend to be dynamic – their status changes over time. To describe this status, we use the concept of the state of a system.

4. Definition: The state of a system is the collection of variables necessary to describe the status of the system at any given time.
Customers arrive and depart, the status of the system changes. To describe these changes in status, we require a set of variables called the state variables.
In a system, an object of interest is called an entity, and any properties of an entity are called attributes.
Systems may be classified as discrete or continuous.

5. Definition: A discrete system is one in which the state variables change continuously over time. A bank is an example of a discrete system.
Definition: A continuous system is one in which the state variables change continuously over time.
There are two types of simulation models, static and dynamic.
Definition: A static simulation model is a representation of a system at a particular point in time.

6. We usually refer to a static simulation as a Monte Carlo simulation.
Definition: A dynamic simulation is a representation of a system as it evolves over time.
Within these two classifications, a simulation may be deterministic or stochastic.
A deterministic simulation model is one that contains no random variables; a stochastic simulation model contains one or more random variables.

7. 21.2 An Example of a Discrete-Event Simulation
To simulate a queuing system, we first have to describe it.
We assume arrivals are drawn from an infinite calling population.
There is unlimited waiting room capacity, and customers will be serve in the order of their arrival (FCFS).
Arrivals occur one at a time in a random fashion.
All arrivals are eventually served with the distribution of service teams as shown in the book.

8. Service times are also assumed to be random
Service times are also assumed to be random. After service, all customers return to the calling population.
For this example, we use the following variables to define the state of the system: (1) the number of customers in the system; (2) the status of the server – that is, whether the server is busy or idle; and (3)the time of the next arrival.
An event is defined as a situation that causes the state of the system to change instantaneously.

9. Next we schedule the departure time of the first customer.
All the information about them is maintained in a list called the event list.
Time in a simulation is maintained using a variable called the clock time.
We begin this simulation with an empty system and arbitrarily assume that our first event, an arrival, takes place at clock time 0.
Next we schedule the departure time of the first customer.
Departure time = clock time now + generated service time

10. Also, we now schedule the next arrival into the system by randomly generating an interarrival time from the interarrival time distribution and setting the arrival time as
Arrival time = clock time now + generated interarrival time
Both these events are their scheduled times are maintained on the event list.
This approach of simulation is called the next-event time-advance mechanism, because of the way the clock time is updated. We advance the simulation clock to the time of the most imminent event.

11. As we move from event to event, we carry out the appropriate actions for each event, including any scheduling of future events.
The jump to the next event in the next-event mechanism may be a large one or a small one; that is, the jumps in this method are variable in size.
We contrast this approach with the fixed-increment time-advance method.
With this method, we advance the simulation clock in increments of Δt time units, where Δt is some appropriate time unit, usually 1 time unit.

12. For most models, however, the next event mechanism tends to be more efficient computationally.
Consequently, we use only the next-event approach for the development of the models for the rest of the chapter.
To demonstrate the simulation model, we need to define several variables:
TM = clock time of the simulation
AT = scheduled time of the next arrival

13. DT = scheduled time of the next departure
SS = status of the server (1=busy, 0=idle)
WL = length of the waiting line
MX = length (in time units) of a simulation run
We now begin the simulation by initializing all the variables. Details of the example are found in the book.
This simple example illustrates some of the basic concepts in simulation and the way in which simulation can be used to analyze a particular problem.

14. 21.3 Random Numbers and Monte Carol Simulation
The procedure of generating these times from the given probability distributions is known as sampling from probability distributions, or random variate generation, or Monte Carlo sampling.
We will discuss several different methods of sampling from discrete distributions.
The principle of sampling from discrete distributions is based on the frequency interpretation of probability.

15. In addition to obtaining the right frequencies, the sampling procedure should be independent; that is, each generated service time should be independent of the service times that precede it and follow it.
This procedure of segmentation and using a roulette wheel is equivalent to generating integer random numbers between 00 and 99.
This follows from the fact that each random number in a sequence has an equal probability of showing up, and each random number is independent of the numbers that precede and follow it.

16. A random number, Ri, is defined as an independent random sample drawn from a continuous uniform distribution whose probability density function (pdf) is given by

17. Random Number Generators
Since our interest in random numbers is for use within simulations, we need to be able to generate them on a computer.
This is done by using mathematical functions called random number generators.
Most random number generators use some form of a congruential relationships. Examples of such generators include linear congruential generator, the multiplicative generator, and the mixed generator.
The lineal congruential generator is by far the most widely used.

18. Random number generators must have these important characteristics:
Each random number generated using this methods will be a decimal number between 0 and 1.
Random numbers generated using congruential methods are called pseudorandom numbers.
Random number generators must have these important characteristics:
The routine must be fast
The routine should not require a lot of core storage
The random numbers should be replicable; and
The routine should have a sufficiently long cycle

19. Most programming languages have built-in library functions that provide random (or pseudorandom) numbers directly.

20. Computer Generation of Random Numbers
We now take the method of Monte Carlo sampling a stage further and develop a procedure using random numbers generated on a computer.
The idea is to transform the U(0,1) random numbers into integer random numbers between 00 and 99 and then to use these integer random numbers to achieve the segmentation by numbers.
We now formalize this procedure and use it to generate random variates for a discrete random variable.

21. The procedure consists of two steps:
We develop the cumulative probability distribution (cdf) for the given random variable, and
We use the cdf to allocate the integer random numbers directly to the various values of the random variables.

22. 21.4 An Example of Monte Carlo Simulation
The book uses a Monte Carlo simulation to simulate a news vendor problem.
The procedure in this simulation is different from the queuing simulation, in that the present simulation does not evolve over time in the same way.
Here, every day is an independent simulation. Such simulations are commonly referred to as Monte Carlo simulations.

23. 21.5 Simulations with Continuous Random Variables
In many simulations, it is more realistic and practical to use continuous random variables.
We present and discuss several procedures for generating random variates from continuous distributions.
The basic principle is similar to the discrete case.
We first generate U(0,1) random number and then transform it into a random variate from the specified distribution.

24. The selection of a particular algorithm will depend on the distribution from which we want to generate, taking into account such factors as the exactness of the random variables, the computations and storage efficiencies, and the complexity of the algorithm.
The two most common used algorithms are the inverse transformation method (ITM) and the acceptance-rejection method (ARM).

25. Inverse Transformation Method
The inverse transformation method is generally used for distribution whose cumulative distribution function can be obtained in closed form.
Examples include the exponential, the uniform, the triangular, and the Weibull distributions.
For distributions whose cdf does not exist in closed form, it may be possible to use some numerical method, such as a power-series expansion, within the algorithm to evaluate the cdf.

26. The ITM is relatively easy to describe and execute.
It consists of the following steps:
Step1: Given the probability density formula f(x) for a random variable X, obtain the cumulative distribution function F(x) as
Step 2: Generate a random number r.
Step 3: Set F(x) = r and solve for x.

27. We consider the distribution given by the function
A function of this type is called a ramp function.
To obtain random variates from the distribution using the inverse transformation method, we first computer the cdf as
0 ≤ x ≤ 2
otherwise

28. In Step 2, we generate a random number r.
Finally, in Step 3, we set F(x) =r and solve for x.
Since the service time are defined only for positive values of x, a service time of as the solution for x. This equation is called a random variate generator or a process generator.

29. Thus, to obtain a service time, we first generate a random number and then transform it using the preceding equation.
As this example shows, the major advantage of the inverse transformation method is its simplicity and ease of application.

30. Acceptance – Rejection Method
There are several important distributions, including the Erlang (used in queuing models) and the beta (used in PERT), whose cumulative distribution functions do not exist in closed form.
For these distributions, we must resort to other methods of generating random variates, one of which is the acceptance – rejection method (ARM).
This method is generally used for distributions whose domains are defined over finite intervals.

31. Given a distribution whose pdf, f(x), is defined over the interval a ≤ x ≤ b, the algorithm consists of the following steps:
Step 1: Select a constant M such that M is the largest value of f(x) over the interval [a, b].
Step 2: Generate two random numbers, r1 and r2.
Step 3: Computer x* = a + (b – a)r1. (This ensures that each member of [a, b] has an equal chance to be chosen as x*.)
Step 4: Evaluate the function f(x) at the point x*. Let this be f(x*).

32. Step 5: If deliver x* as a random variate from the distribution whose pdf is f(x). Otherwise, reject x* and go back to Step 2.
Note that the algorithm continues looping back to Step 2 until a random variate is accepted.
This may take several iterations. For this reason, the algorithm can be relatively inefficient.
The efficiency, however, is highly dependent on the shape of the distribution.

33. There are several ways by which the method can be made more efficient.
One of these is to use a function in Step 1 instead of a constant.
We now give an intuitive justification of the validity of the ARM.
In particular, we want to show that the ARM does generate observations from the given random variable X.

34. Direct and Convolution Methods for the Normal Distribution
Both the inverse transformation method and the acceptance – reject method are inappropriate for the normal distribution, because (1) the cdf does not equal in closed form and (2) the distribution is not defined over a finite interval.
Other methods such as – an algorithm based on convolution techniques, and then a direct transformation algorithm that produces two standard normal variates with mean 0 and variance 1.

35. The Convolution Algorithm
In the convolution algorithm, we make direct use of the Central Limit Theorem.
The Central Limit Theorem states that the sum Y of n independent and identically distributed random variables ( say Y1, Y2,…Yn), each with mean µ and finite variance σ2) is approximately normally distributed with mean nµ and variance nµ2.
If we want to generate a normal variate X with mean µ and variance σ2, we first generate Z using this process generator then transform it using the relation X = µ + σZ. Unique to normal distribution.

36. The Direct Method
The direct methods for the normal distribution was developed by Box and Muller (1958).
It’s not as efficient as some of the newer techniques, it is easy to apply and execute.
The algorithm generates two U(0,1) random numbers, r1 and r2, and then transforms them into two normal variates, each with mean 0 and variance 1, using the direct transformation.

37. It is easy to transform these standardized normal variates intro normal variates X1 and X2 from the distribution with mean µ and variance σ2, using the equations

38. 21.6 An Example of a Stochastic Simulation
Cabot Inc. is a large mail order firm in Chicago.
Orders arrive into the warehouse via telephones. At present, Cabot maintains 10 operators on-line 24 hours a day.
The operators take the orders and feed them directly into a central computer, using terminals.
Each operator has one terminal. At present, the company has a total of 11 terminals.
That is, if all terminals are working, there will be 1 spare terminal.

39. Cabot managers believe that the terminal system needs evaluation, because the downtime of operators due to broken terminals has been excessive.
They feel that the problem can be solved by the purchase of some additional terminals for the spares pool.
It has been determined that a new terminal will cost a total of $75 per week.
It has also been determined that the cost of terminal downtime, in terms of delays, lost orders, and so on is $1000 per week.

40. Given this information, the Cabot managers would like to determine how many additional terminals they should purchase.
This model is a version of the machine repair problem.
It is easy to find an analytical solution to the problem using the birth-death processes.
However, in analyzing the historical data for the terminals, it has been determined that although the breakdown times can be represented by the exponential distribution, the repair times can be adequately represented only by the exponential distribution.

41. This implies that analytical methods cannot be used and that we must use simulation.
To simulate this system, we first require the parameters of both the distributions.
The data show that the breakdown rate is exponential and equal to 1 per week per terminal.
In other words, the time breakdowns for a terminal is exponential with a mean equal to 1 week.
Analysis for the repair times shows that this distribution can be represented by the triangular distribution which has a mean of week.

42. The repair stuff on average can repair 13.33 terminals per week.
To find the optimal number of terminals, we must balance the cost of the additional terminals against the increased revenues generated as a result of the increase in the number of terminals.
In this simulation we increase the number of terminals in the system, n, from the present total of 11 in increments of 1.

43. For this fixed value of n, we then run our simulation model to estimate the net revenue.
Net revenue here is defined as the difference between the increase in revenues due to the additional terminals and the cost of these additional terminals.
We keep on adding terminals until the net revenue position reaches a peak.
To calculate the net revenue, we first computer the average number of on-line terminals, ELn, for a fixed number of terminals in the system, n.

44. Once we have a value of ELn, we can computer the expected weekly downtime costs, given by 1000(10-ELn).
Then the increase in revenue as a result of increasing the number of terminals from 11 to n is 1000(ELn – EL11). Mathematically, we compute ELn

45. T = length of simulation
where
T = length of simulation
N(t) = number of terminals on-line at time t (0≤t≤T)
Ai = area of rectangle under N(t) between ei-1 and ei (where ei is the time of the ith event)
m = number of events that occur in the interval [0,T]
Between time 0 and time e1, the time of the first event, the total on-line time for all the terminals is given by 10ei, since each terminal is on-line for a period of e1 time units.

46. If we now run this simulation over T time units and sum up the areas A1, A2, A3,…, we can get an estimate for EL10 by dividing this sum by T. This statistic is called a time-average statistic.
We would like to set up the process in such way that it will be possible to collect the statistics to computer the areas A1, A2, A3,….
That is, as we move from event to event, we would like to keep track of at least the number of terminals on-line between the events and the time between events.

47. We first define the state of the system as the number of terminals in the repair facility.
The only time the state of the system will change is when there is either a breakdown or a completion of a repair.
Therefore, there are two events in this simulation: breakdown and completion of repairs.
To set up the simulation, our first task is to determine the process generators for both the breakdown and the repair times.

48. We use the ITM to develop the process generators.
For the exponential distribution the process generator is simply x = -log r
In case of the repair times, applying the ITM gives us and as the process generators.

49. For each n, we start the simulation in the state where there are no terminals in the repair facility.
In this state, all 10 operators are on-line and any remaining terminals are in the spares pool.
Our first action is the simulation is to schedule the first series of events, the breakdown times for the terminals presently on-line.
Having scheduled these events, we next determine the first event, the first breakdown, by searching through the current event list.

50. To process a breakdown, we take two separate series of actions
We then move the simulation clock to the time of this event and process this breakdown.
To process a breakdown, we take two separate series of actions
Determine whether a spare is available.
Determine whether the repair staff is idle.
These actions are summarized in the system flow diagram showed in the book in Figure 17.
Otherwise, we process a completion of a repair.

51. To process the completion of a repair, we also undertake two series of actions.
At the completion of a repair, we have an additional working terminal, so we determine whether the terminal goes directly to an operator or to the spares pool.
We check the repair queue to see whether any terminals are waiting to be repaired.
We proceed with the simulation by moving from event to event until the termination time T.
At this time, we calculate all the relevant measures of performance from the statistical counters.

52. Our key measure is the net revenue for the current value of n.
If this revenue is greater than the revenue for a system with n-1 terminals, we increase the value of n by 1 and repeat the simulation with n +1 terminals in the system.
Otherwise, the net revenue has reached a peak.
The simulation outlined in this example can be used to analyze other policy options that management may have.

53. The simulation model provides a very flexible mechanism for evaluating alternative policies.

54. 21.7 Statistical Analysis of Simulations
As previously mentioned, output data from simulation always exhibit random variability, since random variables are input to the simulation model.
We must utilize statistical methods to analyze output from simulations.
The overall measure of variability is generally stated in the form of a confidence interval at a given level of confidence.
Thus, the purpose of the statistical analysis is to estimate this confidence interval.

55. Determination of the confidence intervals in simulation is complicated by the fact that output data are rarely, if ever, independent.
This means that the classical methods of statistics, which assumer independence are not directly applicable to the analysis of simulation output data.
We must modify the statistical methods to make proper inferences from simulation data.

56. In addition to the problem of autocorrelation, we must have a second problem, in that the specification of the initial conditions of the system at time 0 may influence the output data.
This initial period of time before a simulation reached steady state is called the transient period or warmup period.
There are two ways of overcoming the problems associated with the transient period.
The first approach is to use a set of initial conditions that are representative of the system in a steady state.

57. The alternative approach is to let the simulation run for a while and discard the initial part of the simulation.
Since each simulation model is different, it is up to the analyst to determine when the transient period ends.
This is a difficult process, there are some general guidelines one can use.

58. Simulation Types
For the purpose of analyzing output data, we generally categorize simulations into one of two types: terminating simulations and steady-state simulations.
A terminating simulation is one that runs for a duration of time TE, where E is a specified event (or events) that stops the simulation.
A steady-state simulation is one that runs over a long period of time; that is, the length of the simulation goes to “infinity”.

59. Often, the type of model determines which type of output analysis is appropriate for a particular simulation.
However, the system or model may not always be the best indicator of which simulation would be the most appropriate.
It is quite possible to use the terminating simulation approach for systems more suited to steady-state simulations, and vice versa.
The analysis for steady-state simulations is much more involved.

60. To illustrate the terminating simulation approach, we use an example from the Cabot case.
We assume there are 11 terminals in the system and we perform only 10 independent terminating runs of the simulation model.
The terminating event, E, is a fixed time.
That is, all 10 simulations are run for the same length of time.
The overall average for these 10 runs for the expected number of terminals on-line turns out to be

61. If we now calculate the sample variance, we find S2 = 0.018.
Since t(.025,9)=2.26, we obtain as the 95% confidence interval for this sample.
We could have also computed t(.025,9)in EXCEL with the formula =TINV(0.5,9).
This yields 2.26, which is consistent with the T Table.

62. As we saw in this example, the terminating simulation approach offers a relatively easy method for analyzing simulation data may be more efficient for a give problem.

63. 21.8 Simulation Languages
One of the most important aspects of a simulation study is the computer programming.
Several special-purpose computer simulation languages have been developed to simplify programming.
The best known and most readily available simulation languages, including GPSS, GASP IV and SLAM.
Most simulation languages use one of two different modeling approaches or orientations; event scheduling or process interaction.

64. GPSS uses the process-interaction approach.
SLAM allows the modeler to use either approach or even a mixture of the two, whichever is the most appropriate for the model being analyzed.
Of the general-purpose languages, FORTRAN is the most commonly used in simulation.
In fact, several simulation languages, including GASP IV and SLAM, use a FORTRAN base.

65. To use GASP IV we must provide a main program, an initialization routine, and the event routines.
For the rest of the program, we use the GASP routines.
Because of these prewritten routines, GASP IV provides a great deal of programming flexibility.
GPSS, in contrast to GASP, is a highly structured special-purpose language.
GPSS does not require writing a program in the usual sense.

66. Building a GPSS model then consist of combining these sets of blocks into a flow diagram so that it represents the path an entity takes as it passes through the system.
SLAM was developed by Pritsket and Pegden (1979). It allows us to develop simulation model as network models, discrete-event models, continuous models, or any combination of these.
In Chapter 10, we will show you how to use the user-friendly powerful process model package which is included on the books CD-ROM.

67. The decision of which language to use is one of the most important that a modeler or an analyst must make in performing a simulation study.
The simulation language offer several advantages.
The most important of these is that the special-purpose languages provide a natural framework for simulation modeling and most of the features needed in programming a simulation model.

68. 21.9 The Simulation Process
We now discuss the process for a complete simulation study and present a systematic approach of carrying out a simulation.
A simulation study normally consists of several distinct stages. (See Figure 21 in the book)
However, not all simulation studies consist of all these stages or follow the order stated here.
On the other hand, there may even be considerable overlap between some of these stages.

69. The initial stage of any scientific study, including a simulation project, requires an explicit statement of the objectives of the study.
The next stage is the development of the model and the collection of data.
We next put it into a form in which it can be analyzed on the computer. This usually involves developing a computer program for the model.
Once the program has been developed and debugged, we determine whether the program is working properly.

70. In other words, is the program doing what it is supposed to do
In other words, is the program doing what it is supposed to do? This process is call the verification step and is usually difficult, since for most simulations, we will not have any results with which to compare the computer output.
We now move to the validation stage.
In this step we validate the model to determine whether it realistically represents the system being analyzed and whether the results from the model will be reliable.

71. If we are satisfied at this stage with the performance of the model, we can use the model to conduct the experiments to answer the questions at hand.
The data generated by the simulation experiments must be collected, processed, and analyzed.
The results are analyzed not only as the solution to the model but also in terms of statistical reliability and validity.
Finally, after the results are processed and analyzed, a decision must be mage whether to perform any additional experiments.