MGS3100 - Project 1 - Inventory Simulation (revised 12/28/04):

You are to develop a spreadsheet to simulate the following inventory system. A company stocks product KB456 each week. Product KB456 costs $150 per unit and is resold for $230 per unit. Units not sold during one week are held over and sold the next week at a cost of $15 per unit, charged on beginning inventory. The company charges itself $12 per unit for lost sales. The company uses a fixed quantity inventory system. The company desires to maximize profit. The demand for product KB456 follows a uniform distribution with a minimum of 150 units and a maximum of 200 units. The company is considering three possible order levels. These are 170, 175, or 180 units per week. Beginning inventory is zero. You are to do 30 one year simulations for each of the three stock levels and use the results to determine which of the three order amounts should be selected. You will hand in two spreadsheets - one with data, and one with formulas, plus the data for the 90 runs you did and a 95% confidence interval for the mean profit for each of the three order amounts. Instructions for the spreadsheet: Once the spreadsheet is open, click on Tools, then Options, then Calculation, and Manual. Then click OK. This will set your spreadsheet on manual recalculation. [Note that hitting "Enter" or "Save" will cause a re-calculation!] Cell A1 Beginning Cell B1 Inventory Cell G1 =round(average(n11:n62),4) Cell A2 Order Cell B2 Amount Cell A3 Item Cell B3 Cost Cell F3 Your First Name Cell A4 Inventory Cell B4 Cost Cell A5 Cost of Cell B5 Lost Sales Cell A6 Sales Cell B6 Revenue Cell B9 Beginning Cell I9 Cost of Cell C1 Cell C2 Cell C3 0 170 150 Cell E1 Average Cell F1 Profit

Cell E3 Your Last Name

Cell C4 15 Cell E4 Your class section number Cell C5 12 Cell C6 230

Cell D9 Total Cell F9 Units Cell G9 Ending Cell H9 Units of Cell J9 Inventory Cell K9 Cost of Cell L9 Total Cell M9 Sales

Cell A10 Week Cell B10 Inventory Cell C10 Order Cell D10 Stock Cell E10 Demand Cell F10 Sold Cell G10 Inventory Cell H10 Lost Sales Cell I10 Goods Cell J10 Cost Cell K10 Lost Sales Cell L 10 Cost Cell M10 Revenue Cell N10 Profit Cell A11 =1 Cell B11 =C1 Cell C11 =$C$2 Cell D11 =B11+C11 Cell E11 =round(rand()*(200-150)+150,0) Cell F11 =Min(D11:E11) Cell G11 =D11-F11 Cell H11 =E11-F11 Cell I11 =$C$3*F11 Cell J11 =$C$4*B11 Cell K11 =$C$5*H11 Cell L11 =sum(I11:K11) Cell M11 =$C$6*F11 Cell N11 =M11-L11 Cell A12 =A11+1 Cell B12 =G11 Cell C12 =$C$2 Cell D12 =B12+C12 Cell E12 =round(rand()*(200-150)+150,0) Cell F12 =Min(D12:E12) Cell G12 =D12-F12 Cell H12 =E12-F12 Cell I12 =$C$3*F12 Cell J12 =$C$4*B12 Cell K12 =$C$5*H12 Cell L12 =sum(I12:K12) Cell M12 =$C$6*F12 Cell N12 =M12-L12 Once row 12 is completed, copy it down to row 62. This will complete your one year simulation. Each time you hit F9, the spreadsheet will recalculate and give you another year's simulation.

To do 30 simulations, simply write down the average profit shown in cell G1, hit F9 and a new profit will appear - write it down! Keep repeating the process until you have 30 profits. Go to cell C2, change the 170 to 175, and hit F9 - this is your first profit for that order amount. Write it down, and repeat the process 30 times. Go to cell C2, change the 175 to 180, and hit F9 - this is your first profit for that order amount. Write it down, and repeat the process 30 times. You can write down the profits by hand or use copy and paste special (value). I would show the profits in a separate table on sheet two. For each order amount, title the column with the order amount, and then list the 30 profits you have generated. Then, for each column of numbers: Find the mean using the average formula for each column of values. Find the standard deviation using the standard deviation formula. Calculate a 95% confidence interval for the mean. Show the lower and upper limit. The formulas should follow the following format (assuming the first column of data is in column B, and starts in cell B11): Average: =AVERAGE(B11:B40) Std. Dev.: =STDEV(B11:B40) Upper Confidence Limit: B41+ 1.96*B42 Lower Confidence Limit: B41 - 1.96*B42 Do this for all three order amounts. Then looking at the means, standard deviations and confidence intervals, choose which of the amount that you believe will maximize profit, and state why that is your choice. [Highlight cells B41 to D42, click on the chart wizard, and view the ranges for each strategy to make this decision.] Helpful hints: There should be no negative numbers in your primary spreadsheet. If you have an extremely large standard deviation for one of your strategies, you may have transcribed on or more of your profit values from the spreadsheet incorrectly. When you hit enter, save, or F9, Excel will recompute the spreadsheet using new random numbers. Don't bother to save the results. If you lose one, just do it again.

the 90

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