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10

C H A P T E R

Simulation Modeling

SOLUTIONS TO DISCUSSION QUESTIONS

AND PROBLEMS
10-1. Advantages of simulation: (1) relatively straightforward;
(2) can solve large, complex problems; (3) allows what if questions; (4) does not interfere with real-world systems; (5) allows
study of interactive variables; (6) allows time compression; (7) allows inclusion of real-world complications. Disadvantages;
(1) cost; (2) no optimal solutions; (3) managers must generate conditions to test; (4) each model is unique.
10-2. a. Inventory ordering policy: May require simulation if
lead time and daily demand are not constant. Also useful if
data do not follow traditional probability distribution.
b. Ship docking in port to unload: If arrivals and unloadings do not follow Poisson/exponential distributions
common to queuing problems, or if other queuing model
assumptions are violated (for example, FIFO not observed).
c. Bank teller service windows: If arrivals or service
times do not follow standard distributions, or if several
waiting lines exist, may be easier to use simulation.
d. U.S. economy: Because mathematical equations and
relationships are too complex to solve mathematically and
because an optimal solution may not exist.
10-3. Problems with conditions of certainty can be solved more
easily by other decision modeling techniques. Problems that require quick answers that cannot wait for a simulation model to be
built are a second category.
10-4. Major steps are: (1) define problem, (2) introduce important variables, (3) construct model, specify values to test, (4) conduct simulation, (5) examine results, (6) select best plan.
10-5. When a system contains elements that exhibit chance in
their behavior, the Monte Carlo method of simulation may be applied. The basis of Monte Carlo simulation is experimentation on
the chance (or probabilistic) elements through random sampling.
Monte Carlo steps: (1) set up probability distribution(s), (2) set up
cumulative probabilities, (3) establish random number intervals,
(4) generate random numbers, (5) simulate trials.
10-6. A computer is necessary for three reasons: (1) it can do time
periods or trials in a matter of seconds or minutes, (2) it can quickly
examine and allow change in the complex interrelationships being
studied, and (3) it can internally (through a subroutine or function
statement) generate random numbers by the thousands or millions.
10-7. Operational gaming is a simulation involving competing
players. Systems simulation tests the operating environment of a
large system such as a corporation, government, or hospital.

10-8. Simulation may very well increase in use for several reasons: (1) computers are in all types and sizes of businesses;
(2) simulation languages may be refined and made easier for noncomputer managers to use, especially with the advent of spreadsheet approaches; (3) the mass of graduates educated in decision
modeling entering the corporate world is growing, decreasing resistance to sophisticated techniques; and (4) complex problems
will not become fewer in nature.
10-9. The results of a simulation model approach the expected
value (or average) of the output measure as the number of replication increases. If the number of replications used is relatively small,
the results could change appreciably each time the model is run.
However, with longer runs, the results should be relatively stable.
10-10. A flow diagram shows the logic of the simulation
process. That is, it shows the sequence in which tasks occur in the
model, and the impact of each tasks outcome on subsequent tasks.
Hence, a flow diagram may help in ensuring that the simulation
model does, in fact, mimic the environment that is being modeled.
10-11. Three main reasons why using an add-in program is useful
in simulation modeling are: (1) they have built-in functions to simulate from a large number of probability distributions that may be
difficult to simulate using Excels built-in functions; (2) they have
built-in procedures that make it very easy to replicate the simulation model; and (3) they have built-in procedures that make it very
easy to collect and display information on various output measures.
10-12. A one-variable Data Table allows us to replicate a simulation model N times for a given set of input data values. We can
replicate several different output measures using a single onevariable Data Table. In contrast, each two-variable table allows us
to replicate only one output measure at a time. However, in this
type of table, we can automatically substitute many possible values for an input data, and run N replications each time.
10-13. Excels Solver requires a deterministic environment. That
is, the input data values must be fixed, and the consequence of each
decision must be fixed and identifiable. In contrast, simulation is
useful in probabilistic environments where there is uncertainty.
Hence, it is not feasible to use Solver to solve simulation models.
Note: In the simulation results that follow, we have provided numerical answers based on 200 replications using Excels Data
Table. Remember that the answers obtained each time when we
open the Excel file for the problem may be different, depending
on the random numbers and number of replications used. For
many of the problems, we have also provided the numerical answer based on 3,000 replications using Crystal Ball.

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10-14. See file P10-14.XLS for the simulation model and calculations. The expected value of failures computed using the probability distribution is 2.68 per month. The average, based on
simulation for 300 months is around the same value, but slightly
different. The reason for the difference is that a simulation interval
of just 300 months is not adequate for the model to stabilize. If we
run the simulation for a longer period of time, the simulated average will also be 2.68 failures per month.
10-15. See file P10-15.XLS for the simulation model and calculations. Based on 200 replications using a one-variable Data
Table, Maruggis average ending balance at the end of the year
seems to be positive (typically under $100). There is also a 10% to
15% chance that Maruggi will have a negative ending balance in a
month during the year. This is sufficiently high for us to paint a
rather bleak picture of his financial health.
See file P10-15 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, the average
ending balance at the end of the year is $47. There is also a 14.8%
chance that Maruggi will have a negative ending balance in a
month during the year.
10-16. See file P10-16.XLS for the simulation model and
calculations.
(a) To compare the two options, we must simulate a specified
number of failures for each option. In our model, we have chosen
to simulate 20 failures for each option.
If we replace only one pen at a time, based on 200 replications
using a one-variable Data Table, the plotter would operate a total
of about 840 hours before it would have had 20 failures. Therefore, the total cost of this option for 20 failures is:
Total cost  (20 failures)(1 pen)($8/pen) 
(1 hour/repair)($50/hour)  $1,160

(20

repairs)

Total cost per hour  $1,160 / 840 hours  $1.38 per hour.
If we replace all four pens at a time, based on 200 replications
using a one-variable Data Table, the plotter would operate a total
of about 2,350 hours before it would have had 20 failures. The
total cost of this option for 20 failures is therefore:
Total cost  (20 failures)(4 pens)($8/pen)  (20 repairs)
(2 hours/repair)($50/hour)  $2,640
Total cost per hour  $2,640/2,350 hours  $1.12 per hour.
Since the total cost per hour is cheaper for the latter option, it appears that Brennan should replace all four pens each time there is a
failure.
(b) We can use an analytical approach to compute the
expected time between failures for either option. If we replace
only one pen at a time, the expected time between failures is 42
hours.
Total cost  (1 failure)(1 pen)($8/pen)  (1
(1 hour/repair)($50/hour)  $58
Total cost per hour  $58 / 42 hours  $1.38 per hour.

repair)

If we replace all four pens each time, the expected time between
failures is 117.5 hours.
Total cost  (1 failure)(4 pens)($8/pen)  (1 repair)
(2 hours/repair)($50/hour)  $132
Total cost per hour  $132 / 117.5 hours  $1.12 per hour.
These results are very close to the results we obtained using simulation, and confirm the validity of the simulation model.

See file P10-16 CB.XLS for the simulation model and calculations using Crystal Ball. The results are similar to that obtained
using Data Table.
10-17. See file P10-17.XLS for the simulation model and calculations. An easy way of setting up this problem and keeping track
of the time is to convert all clock times to a continuous scale. For
example, if we let 9:30AM (the first appointment) be the 0th
minute, 9:45AM would be the 15th minute, 10:15AM would be
the 45th minute, and so on. If Dr. Greenberg has to leave at
12:15PM to catch his flight, this implies he has to finish his last
appointment by the 165th minute.
Based on 200 replications using a one-variable Data Table, it
appears that Dr. Greenberg will take at least 170 minutes to finish
his appointments. The simulation indicates that he has only around
a 30% chance of finishing in 165 minutes or less. Dr. Greenberg
may have to really rush to the airport to catch his flight.
See file P10-17 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Dr. Greenberg
is expected to finish only in 170 minutes. Further, there is only a
31.63% chance that he will finish in 165 minutes or less.
10-18. See file P10-18.XLS for the simulation model and
calculations.
(a) Since Pelnor has a storage capacity of only 25,000 square feet,
we assume that any excess steel received in a week (over the 25,000
limit) is sent back to the supplier. From the simulation, it is clear that
Pelnors inventory quickly climbs to the 25,000 limit and then remains at or near that level for the rest of the year. In fact, Pelnor is
forced to turn back some of the steel received about a third of the
time (probability that storage is 25,000 is around 33%).
The fact that Pelnors inventory climbs in this manner is not
surprising when we compute the expected values of demand and
incoming shipments. Expected weekly demand is only 8,750 sq ft
while the expected incoming shipment is 9,650 sq ft. Hence, on
average, Pelnor receives 900 sq ft more than it needs.
See file P10-18 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Pelnor is
forced to turn back some of the steel received 34% of the time.
(b) Pelnors problem is not with its storage space, even though it
does run out of space very quickly. Based on the expected values
of demand and supply calculated in (a), Pelnor will eventually run
out of storage space no matter what size they make their warehouse. Hence, Pelnor may be better off either trying to increase
demand or renegotiate its contract with the supplier.
10-19. See file P10-19.XLS for the simulation model and
calculations.
(a) This is a somewhat challenging problem since we have to
track the movement of patients from room to room, and each patient may have a different route. In our model, we have tracked the
movement of each patient to as many as 12 rooms (in virtually all
cases, the patient has left the facility by the 11th room). To track
individual movements, we have used nested IF functions (i.e., IF
functions within IF functions) in columns D through M.
(b) In column N, we use a COUNTIF function to compute the
number of times the patient visited the x-ray department. We then
compute the probability that a person visits the x-ray department
more than once (of the current 200 patients) in cell R34. This measure is replicated using a one-variable Data Table and the average
is computed in cell R37. From the simulation, it appears that only
around 5.5% of patients visit the x-ray department more than once.

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10-20. See file P10-20.XLS for the simulation model and

calculations.
(a) We first simulate a one-teller system for 1 hour (that is, include all customers who arrive within 60 minutes, even if they finish after 60 minutes). The results are shown in the sheet named 1teller. Since the expected inter-arrival time is 2.7 minutes, by
simulating 40 customers, we can ensure that in virtually all replications, we have simulated arrivals for 60 minutes. In computing
the total waiting time (cell L20), we include only those customers
who arrived in the first hour. This value is then replicated 200
times using a one-variable Data Table.
(b) Next, we simulate a two-teller system for 1 hour. The results
are shown in the sheet named 2-tellers. Here again, in computing the
total waiting time (cell L20), we include only those customers who
arrived in the first hour. We have assumed that customers form a single queue and select the next available teller. Note that in many typical situations, customers have to select a teller and stay in that queue
till they are served. As in part (a), we compute the total waiting time
for all customers who arrived during the first hour (cell P21), and
replicate this value 200 times using a one-variable Data Table.
(c) It is fairly obvious that the 1-teller system is simply not going
to work. With an expected inter-arrival time of 2.7 minutes and an
expected service time of 3.4 minutes, the wait times will grow
very quickly. For the 1-teller system, the average total wait time of
all customers arriving in an hour (based on 200 replications) is
around 200 minutes (cell L22). The cost of this system per year is:
$1(200 minutes)(7 hours/day)(200 days/year)  $12,000 
$16,000  $308,000
For the 2-teller system, the average total wait time of all customers arriving in an hour (based on 200 replications) is around
1 minute (cell P23). The cost of this system per year is:
$1(1 minute)(7 hours/day)(200 days/year)  $20,000  $32,000
 $53,400
It is absolutely essential that the bank construct a two-teller system if it expects to remain in business.
See file P10-20 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, the average
total wait time for the 1-teller system is 197 minutes. The average
total wait time is only 1.1 minutes for the 2-teller system.
10-21. See file P10-21.XLS for the simulation model and calculations. It appears, based on 200 replications using a one-variable
Data Table, that Alfredos total monthly profit will average
around $239,000.
See file P10-21 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Alfredos
total monthly profit will average $238,978.
10-22. See file P10-22.XLS for the simulation model and calculations. It appears based on 200 replications using a one-variable
Data Table that Julia can expect to average around 3.7 stockouts
per month. This may be viewed as being too high, especially in the
luxury car market.
See file P10-22 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Julia will
average 3.72 stockouts per month.
10-23. The cost calculations are based on the simulation results
in file P10-22.XLS. Based on 200 replications using a one-variable Data Table, Julias total inventory cost will average around
$17,500 per month.

SIMULATION MODELING

89

Based on 3,000 replications using Crystal Ball (see file P10-22

CB.XLS), Julias total inventory cost will average $17,562 per month.
10-24. See file P10-24.XLS for the simulation model and calculations. We can set up a two-variable Data Table to let Excel automatically try the different order sizes. Based on 200 replications
(see cells V3:Z3 for the averages), it appears that Julias total inventory cost is smallest when she orders Q  20 cars.
We can use the Decision Table procedure in Crystal Ball to try
different values for Q. See file P10-24 CB.XLS for these calculations. The results are shown in the sheet named Results. Based on
3,000 replications, Julia should order 18 cars if she wants to reduce her total inventory cost. If Q  18, the inventory cost is
$13,794 per month.
10-25. See file P10-25.XLS for the simulation model and calculations. It appears, based on 200 replications using a one-variable
Data Table, that Terris average monthly profit will be around
$15,275 (cell H17).
See file P10-25 CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Terris average monthly profit will be $15,277.31.
10-26. See file P10-26.XLS for the simulation model and calculations. Based on 200 replications using a one-variable Data
Table, it appears that the chief has only around a 15% chance of
receiving more than $250 in donations from 30 houses.
10-27. See file P10-27.XLS for the simulation model and calculations. It is important to note in this problem that we first simulate
the number of jobs. Then, for each job, we determine if it is residential or commercial. Based on 200 replications using a onevariable Data Table, it appears that Dwayne can expect an average
monthly revenue of around $10,500.
See file P10-27 CB.XLS for the simulation model and calculations using Crystal Ball. With Crystal Ball, we could use the Binomial distribution to simulate the numbers of each type of job (see
cell E5). Based on 3,000 replications, Dwaynes average monthly
revenue will be $10,406.
10-28. See file P10-28.XLS for the simulation model and calculations. We can set up a two-variable Data Table to let Excel automatically try the different order sizes. Based on 200 replications
(see cells E3:G3 for the averages), it appears that Ann should
order 170 hotdogs. The expected profit is around $110, and the
percentage of unsold hotdogs is around 10%.
We can use the Decision Table procedure in Crystal Ball to try
different values for the number of hotdogs to order. See file P1028 CB.XLS for these calculations. The results are shown in the
sheets named Profit and Unsold. Based on 3,000 replications, Ann
should order 170 hotdogs. With this order quantity, the expected
profit is $107.42, and the percentage of unsold hotdogs is 11.2%.

SOLUTION TO ALABAMA AIRLINES CASE

This case is an interesting simulation of a queuing model.
1. See file P10-Alabama.XLS for the simulation model and calculations of the 1-agent (sheet 1-Agent) and 2-agent (sheet 2Agents) environments. In each model, we have provided for the arrival of up to 150 customers. However, we actually simulate
customers arriving only in the first 360 minutes (6 hour interval
between midnight and 6AM).
For the 1-agent case (see sheet named 1-Agent), we calculate
the time at which service starts for a customer by comparing their

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arrival time with the time at which the agent becomes available.
Using this value, we compute the wait time for each customer
(column G), as well as the idle time of the agent (column H).
Based on 200 replications using a one-variable Data Table, the average waiting time is around 8.5 minutes (cell L31), with a maximum time of over 20 minutes (cell L32). The agent is busy over
92% of the time (idle time in cell L33 is less than 8%). Clearly,
this system is not meeting Alabama Airlines objective of keeping
waiting times to 3 or 4 minutes.
For the 2-agent case (see sheet named 2-Agents), we assume
that all customers join a single queue and are answered by the next
available agent. As before, we calculate the time at which service
starts for a customer by comparing their arrival time with the time
at which either agent becomes available. Using this value, we then
compute the wait time for each customer (column K), as well as
the idle times of both agents (columns L and M). For this system,
based on 200 replications using a one-variable Data Table, the average waiting time is around 0.02 minutes (cell U3), with a maximum time of only 2.4 minutes (cell V3). This system therefore
meets Alabama Airlines objective with regards to waiting time.
However, both agents are relatively under-worked with utilization
rates of just around 50%.
2. If the airline proceeds with the advertising campaign, the distribution of its time between call arrivals changes, with a higher
probability of more frequent calls. We would expect the 1-agent
system to deteriorate further, while the 2-agent system should see
increased operator utilization. The revised models are shown in
file P10-Alabama New.XLS. As before, the results for the two
models are shown on separate sheets of this file.
With the new arrival distribution, the average wait time in the
1-agent system balloons to over 26 minutes, with a maximum wait
time of nearly an hour (based on 200 replications). In contrast, the
2-agent system continues to perform well. The average wait time
(based on 200 replications) is only 0.03 minutes with a maximum
wait time of less than 4 minutes. The agents are busy around
5560% of the time, up from the 50% current utilization rate.

SOLUTION TO ABJAR TRANSPORT COMPANY CASE

We need to first analyze the average daily cargo that can be hauled by
each rig. Since there are two types of cargocontainerized and noncontainerziedwe analyze these two types separately as follows:
Noncontainerzied cargo: We assume that these type of shipments can be loaded on the rigs up to their cargo capacity of 60
tons. Since each rig makes 3 trips per day, this implies that each
rig can carry up to 180 tons of noncontainerized cargo per day.
Containerzied cargo: For containerized cargo, 60% is packaged in 40-ft containers, 20% is packaged in 30-ft containers,
and 20% is packaged in 20-ft containers. Each 40-ft container
handles up to 60 tons, each 30-ft container handles up to 45 tons,
and each 20-ft container handles up to 20 tons. However, the
rig can accommodate two 20-ft containers. Hence, the average
containerized cargo handles by the rig per trip per day (0.6 

60  0.2  45  0.2  20  2)  53 tons. Since each rig

makes 3 trips per day, this implies that each rig can carry up to
159 tons of containerized cargo per day.
Using this information, we simulate Abjars operation for one
month (30 days), as shown in file P10-Abjar.XLS. We then use a
one-variable Data Table to replicate the number of containerized
and noncontainerized rigs needed each day in a month.
Based on 200 replications, Abjar will need a total of 30 rigs. Of
these, 8 rigs should be allocated to transport containerized cargo,
and the remaining 22 rigs should be allocated to transport noncontainerized cargo.

INTERNET CASE STUDIES

Biales Waste Disposal, GmbH
Each trip out of Italy costs DM 900 for shipment and another DM
120 for loading and unloading. If there are 25 trips, the annual cost
to operate the Italy office is (DM 1,020 x 25  DM 41,000) 
DM 66,500. To compute the revenue resulting from these 25 trips,
we develop a simulation model as shown in file P10-Biales.XLS.
For each of the 25 trips, the model simulates the number of barrels
transported and the revenue per barrel.
Based on 200 replications using a one-variable Data Table, it
appears that Biales will lose an average of around DM 8,000 per
year by continuing service to the Italy office.
See file P10-Biales CB.XLS for the simulation model and calculations using Crystal Ball. Based on 3,000 replications, Biales will
lose an average of DM 8,124 per year by continuing service to the
Italy office.

Buffalo Alkali and Plastics

To analyze this problem, we develop two simulation models. The
first model assumes that repair times follow the current probability
distribution without the crane. The second model uses the crane,
which reduces the average repair time, but at a higher cost.
The models are shown in file P10-Buffalo.XLS, in the sheets
named Current (without crane) and Crane (with crane). In either
case, we first simulate the number of repairs in a month. The, we
simulate the repair time needed for each failure, and calculate the
profit lost due to the down times of the calciners. For the crane
model, we also calculate the rental cost of the crane. Finally, we
use a one-variable Data Table to replicate the total cost per month,
as well as the total repair time needed.
Based on 200 replications, it appears that Buffalo should not
adopt the accelerated procedure with the crane. With the current
procedure, the average cost per month is only around $32,000,
and the average total number of production days lost is around
26 days. With the accelerated procedure, the average total number
of production days lost drops to 18 days. However, due to the high
crane rental cost, the average cost per month jumps to nearly
$50,000.