Simulation Techniques for Operations Management – An Introduction

1. Erasmus Intensive Programme “SINTROME 2012” Simulation Techniques for Operations Management – An Introduction Dr. Vasiliki Kazantzi Assistant Professor, Dept. of Project Management 16-29September 2012TEI of Larissa, Greece

2. 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

3. 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 Outline

4. The consultancy service market Financial 6 Marketing/sales 2 Organizational design 11 Operations and process management 31 Benefits/Actuarial 16 IT strategy 17 Corporate strategy 17 (source: The Economist, 2005) The Operations Management is of High Demand!

5. OM is 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

6. Operations Management Operations Management Management Principles Management Principles Operations Management which are in fact highly “symbiotic”:

7. 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

8. Four Common Attributes: 2. ‘Exciting’ • ‘Management Principles’: • provides the “Vision” • ‘Operations’: • is at the very centre of changes affecting the Business world

9. 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’:

10. 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

11. 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

12. TRANSFORMED RESOURCES MATERIALS INFORMATION CUSTOMERS FACILITIES STAFF TRANSFORMING RESOURCES All operations are transformation processes ENVIRONMENT GOODS AND SERVICES TRANSFORMATION PROCESS INPUT OUTPUT ENVIRONMENT

13. 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

14. Kitchen unit manufacturing operation Back office operation in a bank They are all operations Take-out / restaurant operation Retail operation

15. 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 ..... • .....

16. The Mind Map of OM

17. 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

18. 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

19. Critical Decisions in OM Service, product design Quality management Process, capacity design Location Layout design Human resources, job design Supply-chain management Inventory management Scheduling Maintenance

20. Design Planning & Control Improvement Operations Activities as Feedback Loops • Design activities set the basic configuration • Planning & control activities guide short/medium term changes • Improvement activities guide longer term changes

21. Broader Scope of OM Activities • How do OM cope with Globalization? • Environmental Protection • Social Responsibility • Technology Awareness etc.

22. Where are the OM Jobs ?

23. 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 Gilbreth1922) Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957) The Heritage of OM - 1

24. 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) The Heritage of OM - 2

25. New Challenges in OM FromTo • 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

26. Operations Management through Simulation • 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

27. Simulation • Numerical technique of experimentation • Attempts to duplicate a system • Features • Behavior • Requires description of system • Many application areas • Operations management • Finance & economics

28. Simulation • Imitate a real world situation • Study its properties and operating characteristics • Draw conclusions and make action decisions

29. Define the Problem Specify values of variables to be tested Introduce important variables Conduct the simulation Examine the results Construct simulation model Select best course of action The Process of Simulation

30. Some Applications of Simulation

31. 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

32. Disadvantages of Simulation • Can be expensive and time consuming • Does not yield optimal solution • Requires good managerial input • Results not generalizable to other situations

33. 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

34. 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

35. demand > begin inv? Begin # of lost sales end inv = begin-demand End inv = 0 Order arrived? End inv < reorder point? Order placed & not arrived? Place order Increase current inv by qty order Enough Days in simulation? Generate Random lead time random # for today's demand Compute averages Simulation and Inventory Analysis - the Basic Model