1. Simulation Professor Stephen Lawrence Leeds School of Business University of Colorado Boulder, CO 80309-0419

2. Simulation Agenda Types of simulation Uses of simulation Simulation examples Manual call center example Queueing simulation (spreadsheet) Financial simulation (spreadsheet) Commercial simulation products Pros and cons of simulation

3. What is Simulation? Process of creating mathematical models that represent real world business operations Design and test new systems Prevent unwise expenditures Reduce risk Maximize effectiveness of scarce resources Anticipate problems, plan solutions Systems Modeling Corp., CINEMA software demo, 1991

4. Types of Simulation Continuous Time Simulation Differential Equations (e.g., System Dynamics) Discrete Event Simulation Distinct events occur over time Time of occurrence may be random Examples Job arrivals, machine breakdowns, patient emergencies, client calls, etc…

5. Uses of Simulation Manufacturing Auto parts Apparel and textiles Electronics Food and beverages Printing, newspapers Metal fabrication Consumer goods Pharmaceuticals Services Airlines and airports Distribution Restaurants Health care Banking and finance Transportation Call/service centers Defense

6. Types of Problems Examined Scheduling resources, jobs, customers Distribution and transportation Allocation of employees Materials handling Communication networks Facility layout Ad infinitum…

7. Examples of Simulation Models

8. Manual Call Center Simulation New Venture Call Center is a contract call center for startup Internet businesses. Client customers call to place orders, ask questions, and receive questions. NVCC currently employs only a single operator. Call interarrival times are uniformly distributed on the interval [1,6] minutes. Service times are uniformly distributed on the interval [1,5] minutes. Unfortunately, the telephone switch used by NVCC is unreliable and frequently breaks down. Breakdowns occur at the end of a call with a probability of 1/12. Time to repair the breakdown is uniformly distributed on the interval [1,3] minutes.

9. Manual Call Center Simulation Job Interarrival Time (rv) Arrival Time Start Time Processing Time (rv) Finish Time Time in System Time in Queue

10. Queueing Simulation General G/G/k queues Collect standard performance queue performance statistics Demonstrate queue variability Excel Spreadsheet

11. Financial Simulation Model future growth of several securities indices Use historic performance to model future activity Demonstrate market volatility Excel spreadsheet

12. Monte Carlo Simulation Randomly sample variables “Throw the dice” to determine variable values Useful to determine range of outcomes Commercial spreadsheet add-ins Crystal Ball @Risk Excel example (Crystal Ball)

13. Commercial Simulation Packages Number of “easy to use” commercial simulation packages available Prices range from $100’s to $10,000s Examples Simscript ProSIM MicroSaint ARENA Extend

14. Issues with Simulation Model Validation Does model replicate current reality? Experimental Design Statistical design to “prove” results Transient vs. Steady-State Behavior

15. Pros and Cons of Simulation CONS Difficult, time-consuming to build and maintain Validation important but tricky Does not optimize -- may settle for inferior results PROS Can model almost any complex business activity Provides useful managerial insight Allows extensive what-if analysis Optimizing tools becoming available

16. Simulation Professor Stephen Lawrence Leeds School of Business University of Colorado Boulder, CO 80309-0419