The simulation deals with a single
production line producing a single product. The demand for
the product averages 100 units per week with a standard deviation
of 30 units per week. While any given customer may buy soap
on a fairly regular schedule, not all have the same usage.
To the company, the demand appears random with large weekly
fluctuations. This is what makes the simulation exciting and
at times frustrating.
The initial production level for the line is 70 units per
week. In each week the production level may remain the same
or be changed. The production level may be changed either up
or down by between 5 and 10 units. There is a fixed cost of
$2500 for any change representing administrative expense and
the labor and materials required. There is a two-week lag before
the change goes into effect. This represents the time required
to implement the change. The lag complicates the situation
because of the highly varying demand. In the two weeks before
the change goes into effect, the demand could be radically
more or less than the expected amount. This is analogous to
trying to steer a ship in heavy seas and varying currents when
there is lag between a steering command and its implementation.
The company has its own warehouse with a capacity of 240 units.
Holding costs are $350 per unit per year or about $7 per week.
Any extra inventory can be stored in public warehouse with
no limit at $1000 per unit per year or about three times as
much. This cost reflects the cost of moving a unit in and out
of the public warehouse and the cost charged for using the
warehouse. The initial inventory is set at 270 units so that
there is little probability of shortage during the first two
weeks of operation.
When the inventory is insufficient to satisfy demand there
is a shortage. The cost of a shortage is $100 per unit per
WEEK! We assume that shortages are backordered and filled with
the first available production.
The simulation runs for 52 weeks. In weeks 26 and 27 production
is shut down for maintenance of the line. Because demand continues
during the shut down, the production plan must prepare for
The player is to specify the production change in each week
of the planning period. The goal is to minimize the total cost
of production changes, inventories and shortages.