Simulation Techniques for Operations Management – An Introduction Dr. Vasiliki Kazantzi Assistant Professor, Dept. of Project Management Erasmus Intensive Programme “SINTROME 2012” September 2012TEI of Larissa, Greece

Simulation Techniques for Operations Management Responsible for the Academic Part of SINTROME: Dr. Vasiliki Kazantzi –Educational Background: »B.Sc. in Chemical Engineering, Aristotle University of Thessaloniki, »M.Eng. and PhD in Chemical Engineering, Texas A&M University, USA –Academic Experience: »Assistant Professor, Department of Project Management, Technological Education Institute of Larissa, Greece »Lecturer, Texas A&M University, USA –Professional Experience: »Environmental Project Consultant, Project Manager (EU funded R&D projects) –Tel Mobile: – –Web:

Simulation Techniques for Operations Management Outline Motivation for Studying OM What is Operations Management (OM) and What Do Operations Managers Do? OM activities and challenges Heritage of OM OM through Simulation Techniques What is Simulation? Advantages and Disadvantages of Simulation Techniques Monte Carlo Simulation Technique

Simulation Techniques for Operations Management The Operations Management is of High Demand! The consultancy service market (source: The Economist, 2005) Marketing/sales 2 Operations and process management 31 Corporate strategy 17 IT strategy 17 Benefits/Actuarial 16 Organizational design 11 Financial 6

Simulation Techniques for Operations Management Management is the process of achieving organisational objectives within a changing environment, by balancing efficiency, effectiveness and equity, obtaining the most from limited resources, and working with and through people OM is Management

Simulation Techniques for Operations Management Management Principles Operations Management Principles Operations Management Operations Management which are in fact highly “symbiotic”:

Simulation Techniques for Operations Management Four Common Attributes: 1. ‘Important’ ‘Management Principles’: intellectual foundation of management thought and innovation for more than 100 years ‘Operations’: design & creation of products and services upon which we all depend the only rationale for an organisation existence (business objectives: reduce costs, increase revenue, reduce amount of investment, provide innovation) ‘operations function’ is the area where most of the organisations financial resources are spent

Simulation Techniques for Operations Management Four Common Attributes: 2. ‘Exciting’ ‘Management Principles’: provides the “Vision” ‘Operations’: is at the very centre of changes affecting the Business world

Simulation Techniques for Operations Management Four Common Attributes: 3. ‘Challenging’ ‘Operations’: creativity is the prime task of Operations Managers: they (have to) respond to global competition, environmental challenges, customer pressure etc. ‘Management Principles’: the essential intellectual underpinning for balancing the ‘3 Es’:

Simulation Techniques for Operations Management Four Common Attributes: 4. ‘Ubiquitous ’ Oxford Illustrated Dictionary (1962) defines ubiquity as “omnipresence, being everywhere or in many places at the same time” ‘Operations’: Operations processes can be found everywhere ‘Management Principles’: cover developments in HR management, chaos theory, game theory, business strategy, change management, ‘ethics’ and so on

Simulation Techniques for Operations Management What is Operations Management? Operation function: arrangement of organization resources to produce products and services Operations management: set of activities, decisions and responsibilities that creates value in the form of goods and services by transforming inputs into outputs Operations managers task: –managing (both effectively and efficiently) resources comprising operations function –managing processes transforming “inputs” into “outputs” »design processes, products and services »monitor processes »seeking ways of improvement

Simulation Techniques for Operations Management All operations are transformation processes ENVIRONMENT INPUTOUTPUT GOODS AND SERVICES TRANSFORMED RESOURCES MATERIALS INFORMATION CUSTOMERS FACILITIES STAFF TRANSFORMING RESOURCES TRANSFORMATION PROCESS

Simulation Techniques for Operations Management Look Around You … Everything you can see around you has been processed by an operation Every service you receive (radio station, bus service, lecture, library etc.) has also been produced by an operation Operations Managers are responsible to manage the creation process of everything you buy, sit on, wear, eat, throw at people, and throw away

Simulation Techniques for Operations Management They are all operations Retail operation Back office operation in a bank Take-out / restaurant operation Kitchen unit manufacturing operation

Simulation Techniques for Operations Management An Operations Manager could be called… “fleet manager”, in a distribution company “administrative manager”, in a hospital “store manager”, in a supermarket and so on

Simulation Techniques for Operations Management The Mind Map of OM

Simulation Techniques for Operations Management Operations Provide Advantages to Business reduce costs of producing products/services by being efficient increase revenue by increasing customer satisfaction through good quality & service reduce amount of investment by increasing effective capacity provide basis for innovation

Simulation Techniques for Operations Management Why Study OM? OM is one of three major functions (marketing, finance, and operations) of any organization We want (and need) to know how goods and services are produced We want to understand what operations managers do OM is such a costly part of an organization

Simulation Techniques for Operations Management Critical Decisions in OM 1.Service, product design 2.Quality management 3.Process, capacity design 4.Location 5.Layout design 6.Human resources, job design 7.Supply-chain management 8.Inventory management 9.Scheduling 10.Maintenance

Simulation Techniques for Operations Management Operations Activities as Feedback Loops  Design activities set the basic configuration  Planning & control activities guide short/medium term changes Planning & Control Design Improvement  Improvement activities guide longer term changes

Simulation Techniques for Operations Management Broader Scope of OM Activities How do OM cope with Globalization? Environmental Protection Social Responsibility Technology Awareness etc.

Simulation Techniques for Operations Management Where are the OM Jobs ?

Simulation Techniques for Operations Management 23 The Heritage of OM - 1 Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957)

Simulation Techniques for Operations Management 24 The Heritage of OM - 2 Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization(1992) Internet (1995)

Simulation Techniques for Operations Management New Challenges in OM Local or national focus Batch shipments Lengthy product development Standard products Job specialization Global focus Just-in-time (pull systems) Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams FromTo From To

Simulation Techniques for Operations Management Simulation is a considerably powerful, yet simple, tool for an experiential understanding of any operational system’s behaviour Presents complex abstract models of reality in experientially rich and concrete forms Simulation training: a ‘learning by doing’ educational approach Simulation games: facilitate a better understanding of the implementation of organizational changes and new processes, as well as the benefits, difficulties, people management and information system needs Operations Management through Simulation

Simulation Techniques for Operations Management Numerical technique of experimentation Attempts to duplicate a system –Features –Behavior Requires description of system Many application areas –Operations management –Finance & economics Simulation

Simulation Techniques for Operations Management Simulation Imitate a real world situation Study its properties and operating characteristics Draw conclusions and make action decisions

Simulation Techniques for Operations Management The Process of Simulation Define the Problem Introduce important variables Construct simulation model Specify values of variables to be tested Conduct the simulation Examine the results Select best course of action

Simulation Techniques for Operations Management Some Applications of Simulation Ambulance location and dispatchingBus scheduling Assembly-line balancingDesign of library operations Parking lot and harbor designTaxi, truck, and railroad dispatching Distribution system designProduction facility scheduling Scheduling aircraftPlant layout Labor-hiring decisionsCapital investments Personnel schedulingProduction scheduling Traffic-light timingSales forecasting Voting pattern predictionInventory planning and control

Simulation Techniques for Operations Management Advantages of Simulation flexible, straightforward can analyze large, complex real-world problems for which no closed-form analytical solutions exists can include real-world complications which most other techniques cannot enables “time compression” allows “what if” type questions does not interfere with the real-world system allows study of relationships

Simulation Techniques for Operations Management Can be expensive and time consuming Does not yield optimal solution Requires good managerial input Results not generalizable to other situations Disadvantages of Simulation

Simulation Techniques for Operations Management The Monte Carlo Simulation Technique The MC Simulation technique applies in systems which contain elements that are probabilistic in nature MC Simulation steps: Setup probability distribution for important variables Build cumulative distribution for each variable Establish interval of random numbers for each variable Generate random numbers Simulate a series of trials

Simulation Techniques for Operations Management Real World Variables Which Are Probabilistic in Nature Inventory demand Lead time for orders to arrive Time between machine breakdowns Times between arrivals at a service facility Service times Times to complete project activities Number of employees absent from work each day

Simulation Techniques for Operations Management Simulation and Inventory Analysis - the Basic Model Begin Increase current inv by qty order end inv = begin-demand # of lost sales End inv = 0 Generate Random lead time Place order Compute averages Enough Days in simulation? Order placed & not arrived? End inv < reorder point? demand > begin inv? Order arrived? random # for today's demand