Question

Discuss all the major aspects of Simulation Modeling. Give examples.

Evaluate various inventory control methods to maximize effectiveness for production and profit.

Assess the need for network analysis of financial date for the most effective decisions

Answer 1

Simulation is the imitation of the operation of a real-world process or system. The act of simulating something first requires that a model be developed; this model represents the key characteristics, behaviors and functions of the selected physical or abstract system or process. The model represents the system itself, whereas the simulation represents the operation of the system over time.

Simulation is used in many contexts, such as simulation of technology for performance optimization, safety engineering, testing, training, education, and video games. Often, computer experiments are used to study simulation models. Simulation is also used with scientific modelling of natural systems or human systems to gain insight into their functioning, as in economics. Simulation can be used to show the eventual real effects of alternative conditions and courses of action. Simulation is also used when the real system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to engage, or it is being designed but not yet built, or it may simply not exist.

Key issues in simulation include acquisition of valid source information about the relevant selection of key characteristics and behaviours, the use of simplifying approximations and assumptions within the simulation, and fidelity and validity of the simulation outcomes. Procedures and protocols for model verification and validation are an ongoing field of academic study, refinement, research and development in simulations technology or practice, particularly in the field of computer simulation.

Systems where it is too expensive or risky to do live tests. Simulation provides an inexpensive, risk-free way to test changes ranging from a "simple" revision to an existing production line to emulation of a new control system or redesign of an entire supply chain.

Large or complex systems for which change is being considered. A "best guess" is usually a poor substitute for an objective analysis. Simulation can accurately predict their behavior under changed conditions and reduce the risk of making a poor decision.

Systems where predicting process variability is important. A spreadsheet analysis cannot capture the dynamic aspects of a system, aspects which can have a major impact on system performance. Simulation can help you understand how various components interact with each other and how they affect overall system performance.

Systems where you have incomplete data. Simulation cannot invent data where it does not exist, but simulation does well at determining sensitivity to unknowns. A high-level model can help you explore alternatives. A more detailed model can help you identify the most important missing data.

Systems where you need to communicate ideas. Development of a simulation helps participants better understand the system. Modern 3D animation and other tools promote communication and understanding across a wide audience.

The following briefly describes the basic steps in the simulation process :

Problem Definition
The initial step involves defining the goals of the study and determing what needs to be solved. The problem is further defined through objective observations of the process to be studied. Care should be taken to determine if simulation is the appropriate tool for the problem under investigation.Project Planning
The tasks for completing the project are broken down into work packages with a responsible party assigned to each package. Milestones are indicated for tracking progress. This schedule is necessary to determine if sufficient time and resources are available for completion.System Definition
This step involves identifying the system components to be modeled and the preformance measures to be analyzed. Often the system is very complex, thus defining the system requires an experienced simulator who can find the appropriate level of detail and flexibility.Model Formulation
Understanding how the actual system behaves and determining the basic requirements of the model are necessary in developing the right model. Creating a flow chart of how the system operates facilitates the understanding of what variables are involved and how these variables interact.Input Data Collection & Analysis
After formulating the model, the type of data to collect is determined. New data is collected and/or existing data is gathered. Data is fitted to theoretical distributions. For example, the arrival rate of a specific part to the manufacturing plant may follow a normal distribution curve.Model Translation
The model is translated into programming language. Choices range from general purpose languages such as fortran or simulation programs such as Arena.Verification & Validation
Verification is the process of ensuring that the model behaves as intended, usually by debugging or through animation. Verification is necessary but not sufficient for validation, that is a model may be verified but not valid. Validation ensures that no significant difference exists between the model and the real system and that the model reflects reality. Validation can be achieved through statistical analysis. Additionally, face validity may be obtained by having the model reviewed and supported by an expert.Experimentation & Analysis
Experimentation involves developing the alternative model(s), executing the simulation runs, and statistically comparing the alternative(s) system performance with that of the real system.Documentation & Implementation
Documentation consists of the written report and/or presentation. The results and implications of the study are discussed. The best course of action is identified, recommended, and justified.

Techniques of Inventory Control

There are a number of different techniques employed by wholesale distributors to ensure their inventory control is maximizing efficiency and profitability. Below are six key techniques of inventory control for wholesalers and distributors of durable goods:

1) Establishing Annual Stocking Policies

Management must decide the maximum and minimum level of stocks and supplies that need to be kept in the warehouse or across the network of warehouse locations. Management must also set optimized re-order levels, safety stock levels (below which supply must not be allowed to fall) and an average inventory level to ensure costs are contained.

2) Preparation of Inventory Budgets

Many organizations have an annual inventory budget and they are usually prepared well in advance before inventory is procured. Budgets should include the total cost of ownership to keep inventory on hand during that year’s account period. This includes materials cost, fixed operational costs, carrying costs, logistics costs, redistribution costs and additional miscellaneous costs that contribute to the total costs of ownership.

3) Maintaining A Perpetual Inventory System

Also known as “the automatic inventory system”, this method is designed to keep a constant track of the quantity and value of each stocked item. Many wholesale distributors leverage a combination of an Enterprise Resource Planning (ERP) or Warehouse Management System (WMS) in conjunction with an Inventory Optimization solution, such as EazyStock, to optimize inventory balances. Most ERP and WMS technologies struggle to keep costs low and service rates high, which is why optimization software can be so valuable to operations processes.

4) Inventory Turnover Ratio

This is a calculation used to determine how quickly inventory is used up or “turned over” in a given time period. The higher the ratio the shorter the shelf life of the inventory and typically leads to higher sales volume and profitability for companies with lower profit margins. Inventory turnover should be closely watched for every item in the warehouse. Over the course of the product’s life cycle, demand will fluctuate and cause variability in the supply chain. Tracking demand patterns are one way to ensure product replenishment calculations are accurate and optimized.

5) Establishment of Optimized Purchasing Procedures

In order to ensure that inventory is under adequate control, management must adopt purchasing procedures that align with actual sales history and demand pattern data. All inventory items that have not had an inventory turnover or have not been sold within an accounting period, typically 12 months, should be classified as obsolete stock and should be liquidated from inventory to eliminate unnecessary carrying costs. Any item with a declining customer demand should be flagged in the system and its safety stock level thresholds and re-order point counts should be downwardly adjusted to mitigate risk of obsolescence and cost.

6) ABC Analysis and ABC Classification

The fastest moving products in your inventory should be located closest to the shipping, staging, and receiving area in the lower-right of the diagram below. As the demand for each product decreases over time, products should be migrated backwards to free up space for items with higher inventory turnover or for new product introductions that have high demand. Since the majority of your picking activity is performed in a rather small area, your warehouse layout should be optimized to reduce time spent looking for product in the back of the warehouse.