Worksheet 2: Simulation

Question 1
The materials manager of a firm wishes to determine the expected (mean) demand for a
particular item in stock during the reorder lead time. This information is needed to determine
how far in advance to reorder, before the stock level is reduced to zero. However, both the lead
time in days and the demand per day for the item are random variables, described by the
probability distribution given in the table below.

Lead Time in days Probability Demand per day (Units) Probability

1 0.45 1 0.15
2 0.35 2 0.25

3 0.2 3 0.4
4 0.2
Simulate the problem for 1000 reorders, to estimate the ideal reorder point.

Question 2
The Manager of a book-store located in a small railway station has to decide the number of copies
of a news-paper to be ordered daily for an English Daily. A copy of the daily is priced Rs. 5.00 and
the book-store gets a commission of 1 rupee on each. Every unsold news-paper is taken by the
food-vendors in the evening for Rs.1.50 each.
Looking at the past records, the probability distribution of demand for this news-paper is follows

Demand 15 16 17 18 19 20 21
(Number of copies)

Probability 0.05 0.10 0.15 0.30 0.20 0.15 0.05

The manager has in the past followed two polices to decide of the order quantity. The first policy
is to order the quantity which is the average of last three day’s demand. Whereas if the second
policy is followed the order quantity is equal to the previous day’s demand.
What should be the best order quantity.