Simulation Techniques for Operations Management – An Introduction

Dr. Vasiliki KazantziAssistant Professor, Dept. of Project Management

Erasmus Intensive Programme“SINTROME 2012”

16-29 September 2012 TEI 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. +30-2410-684545 Mobile: 6940617693

– e-mail: kazantzi@teilar.gr

– Web: http://dde.teilar.gr/main.aspx?category=338&UICulture=el-GR

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/sales2

Operations and process management

31

Corporate strategy17

IT strategy17

Benefits/Actuarial16

Organizational design

11

Financial6

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

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

ENVIRONMENT

INPUT OUTPUTGOODS

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

F i g u r e 1 – 1 0 P r i n c i p a l d e c i s i o n a r e a s w i t h i n o p e r a t i o n s

I n v e n t o r i e s

C a p a c i t y

C o n t r o l

P r o c e s s e s

P l a n t

M e a s u r eR e g u l a t e

C o s t s

S c h e d u l i n g

P r o j e c t s

T a r g e t s

C o m p e t i t i v eg l o b a l

c o n t e x t

I n f o r m a t i o n

O p e r a t i o n sm a n a g e r ’ s

d e c i s i o n s

Q u e u e s

T h e o r y

M o d e l s

O M c o n c e p t s

T i m i n g

D i s t r i b u t i o n

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 Management23

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 Management24

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

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 dispatching Bus schedulingAssembly-line balancing Design of library operationsParking lot and harbor design Taxi, truck, and railroad

dispatching

Distribution system design Production facility schedulingScheduling aircraft Plant layoutLabor-hiring decisions Capital investmentsPersonnel scheduling Production schedulingTraffic-light timing Sales forecastingVoting pattern prediction Inventory 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

Increasecurrent inv

by qty order

end inv =begin-demand

# of lost sales

End inv = 0

Generate Random lead

time

Placeorder

Compute averages

Enough Days in simulation?

Order placed& not arrived?

End inv < reorderpoint?

demand > begin inv?

Orderarrived?

random #for today'sdemand