I S 300: INTRODUCTION TO

INFORMATION SYSTEMS
- Winter 2017
- Shaosong Ou, Ph.D.

Session 10 February 8th, 2017

Microsoft Excel Workshop (I)
Simulation and Optimization
 Agenda

Excel Course on Canvas

Session 11 Makeup Plan

Learning Advanced Excel Functions

Monte Carlo Simulation
Decision modeling
Linear programming and optimization
 Problem Scenario: Random Events

Most difficult forecast/estimation problem: the one with many

random factors
Very common in real-world busines
Often are too complex to solve using math

Example: Six tiers of suppliers in chain, each could deliver parts 1

day behind schedule, on time, 1 day ahead, or 2 days ahead.
Whats the chance the final product delivery is on time?
 Simulating Random Events

Random number generator

RANDBETWEEN(a,b): generates a random integer between a and b
(including a and b)
RAND(): generates a random decimal number between 0 and 1 (not including
0 and 1)
Example: how to randomly choose a year between 2000 & 2015?

Application scenarios
Probability simulation
Solve complex problems for numerical answers without knowing the math
behind them
 Simulation & Array Function

Problem scenario: Toss two dice & add the two numbers
What number appears the most in 1000 tries?
Building dynamic histogram using Array Function
More on array formula: preserving data integrity

How about tossing three dice, adding the 2 bigger #s?

How about tossing four dice, or five?

Supply chain estimation problem revisited

Six tiers of suppliers in chain, each could deliver parts 1 day behind schedule, on
time, 1 day ahead, or 2 days ahead. Whats the chance the final product delivery is
on time?
Histogram Example
 Stock Option Simulation

Stock option example

A stock option gives the holder the right to purchase a share at a fixed
price on a fixed date (but he does not have to).
This means if the share declines in value you wont lose money but if it
increases you can make a profit
Suppose Apples share (AAPL) is currently traded at $100, and on each day
the price can go up $10 with probability 0.5 and down $10 with probability
0.5 independently of the previous days.
How much is an option @ $100 in three days worth?
 Optimization and Production Planning

General Appliance Corporation (GAC), a manufacturer of refrigerators, has two

plants and four distribution centers. The shipping cost for each unit, the production
capacities of the plants, and the demand at each distribution center are listed
below. Develop a shipping plan that 1) meets all demands, 2) does not exceed
production capacity, and 3) minimizes cost.

Distribution Center
Plant Capacity
Cleveland Baltimore Chicago Phoenix

Marietta $12.6 $14.35 $11.52 $17.58 1200

Minneapolis $9.75 $16.26 $8.11 $17.92 800

Demand 150 350 500 1000

Introducing Excel Solver

Building model
Include relationships
Specify optimization target
List constraints
Solve!
 Example 1: Field Trip Planning

A school is preparing a field trip for 400 students:

A) It has 10 50-seat buses with the operation cost of $800 each. How to minimize
the cost for the trip?
B) The company who is providing the transportation has 10 buses of 50 seats each
and 8 buses of 40 seats, but only has 9 drivers available. The rental cost for a large
bus is $800 and $600 for the small bus. Calculate how many buses of each type
should be used for the trip for the least possible cost.
C) Five teachers also need to go on the trip and the school has a 8-seat minivan with
an additional driver. The operating cost of the van is $200. Whats the new solution
now?
 Example 2: PC Production

A small firm that assembles computer equipment is about to start production of two new
types of computers. The first type requires 3 hours of assembly time and 3 cubic feet of
storage space, and the second type requires 8 hours and 4 cubic feet. The resources that
can be devoted to the production are limited: there is only 100 hours of assembly time
and 58 cubic feet of storage space available. Based on a market survey, it is believed that
all produced units can be sold and the per-unit profit are $100 and $160 for types 1 and 2
respectively.
a) Determine the quantity of each computer to produce in order to maximize the
profit.
b) What if in addition to the computers the firm need to make packaging for each unit
before it can be sold? The packaging includes foam, boxes, plastic bags, etc. and each
costs $5 to make, 30 minutes to produce and takes 3 cubic feet to store. Whats the
new solution?
 Liquidation & Transportation

A store wants to liquidate 200 of its shirts and 100 pairs of pants from last season.
They have decided to put together two offers, A and B. Offer A is a package of one
shirt and a pair of pants which will sell for $30. Offer B is a package of three shirts
and a pair of pants, which will sell for $50. The store does not want to sell less than
20 packages of Offer A and less than 10 of Offer B. How many packages of each do
they have to sell to maximize the money generated from the promotion?

A transport company has two types of trucks, type A and type B. Type A has a
refrigerated capacity of 20 m3 and a non-refrigerated capacity of 40 m3 while type
B has the same overall volume with equal sections for refrigerated and non-
refrigerated stock. A grocer needs to hire trucks for the transport of 3,000 m3 of
refrigerated stock and 4,000 m3 of non-refrigerated stock. The cost per kilometer of
a type A is $30, and $40 for Type B. How many trucks of each type should the
grocer rent to achieve the minimum total cost?