Name: AKAWUNG GABRIEL

Matricule: SENG22TE001

1. Similarities:

Modeling Approach: Both deterministic and stochastic models involve creating mathematical
representations of real-world systems to aid decision-making.

Optimization: Both types aim to optimize decisions, considering various factors to achieve the best
outcome

Differences:

Treatment of Uncertainty:

Deterministic Models: Assume all input parameters are known with certainty, providing a precise
solution.

Stochastic Models: Account for uncertainty by incorporating probabilistic elements, such as random
variables, allowing for a range of possible outcomes.

Example - Inventory Management:

Deterministic Approach: In a deterministic inventory model, one might assume a constant demand rate
and fixed lead times, providing a precise order quantity to minimize costs.

Stochastic Approach: In a stochastic inventory model, the demand and lead times are considered
uncertain, involving probability distributions. Monte Carlo simulations could be used to assess the range
of possible inventory outcomes and associated costs.

Risk Analysis:
Deterministic Models: Do not explicitly address risk and variability, potentially leading to suboptimal
decisions in uncertain environments.

Stochastic Models: Explicitly account for risk, allowing decision-makers to understand and manage
uncertainty.

In summary, while both deterministic and stochastic models share common goals in aiding decision-
making, their treatment of uncertainty distinguishes them. Deterministic models provide precise
solutions under known conditions, whereas stochastic models embrace uncertainty, offering more
realistic insights into complex industrial scenarios.

2. Deterministic Models:

Example: Deterministic Inventory Management for a Retail Store

In a deterministic inventory management scenario, let's consider a retail store that orders products from
a supplier. The model assumes fixed and known values for demand, lead times, and order quantities.
The Economic Order Quantity (EOQ) formula might be applied to determine the optimal order quantity
that minimizes total inventory costs. This approach simplifies decision-making but can lead to
suboptimal outcomes when faced with fluctuations in demand or unexpected disruptions.

For instance, if the store experiences a sudden surge in customer demand or if the supplier faces delays,
the deterministic model might fail to account for these uncertainties, potentially resulting in stockouts
or excess inventory.

Stochastic Models:

Example: Stochastic Inventory Management for an E-commerce Warehouse

In a stochastic inventory management scenario, let's consider an e-commerce warehouse that faces
variable and uncertain demand patterns. A stochastic model incorporates probability distributions for
demand, lead times, and other relevant factors. This could involve using Monte Carlo simulations to run
multiple scenarios and assess the likelihood of different outcomes.

In this context, a stochastic model might recommend a more flexible reorder strategy, considering
safety stock levels to account for demand variability. This approach helps the warehouse adapt to
unexpected demand spikes or supply chain disruptions, ensuring a more robust and resilient inventory
management system.

In summary, deterministic models provide straightforward solutions based on known parameters,

whereas stochastic models make used of uncertainty, allowing for a more comprehensive
understanding of the potential outcomes and better-informed decision-making in dynamic industrial
settings.