Classification tags: business operations management, DES, next-event time progression
The Lemonade Stand game allows active learning of the following topics:
The Price Elasticity of Demand (PED) is a measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income). In general, the demand for a good is said to be inelastic when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the demand quantity of a good.
Normally, price planning is based on full costs per product unit, which are computed as fixed costs (mainly labor, and, e.g., depreciation on assets and marketing costs) plus variable costs (mainly input materials). In cost-plus pricing, the product price p is planned by adding a proportional profit to the costs c: p = c + rc where r is the planned profit rate.
During favorable market conditions, full costs could be used for cost-plus pricing, while during periods of poor sales (e.g., due to increased competition), marginal costs may be used. The profit rate could be adapted when the PED of the product is changing. For instance, the lemonade stand could increase its planned profit rate when the weather conditions are sunny and warm, because under such conditions the otherwise very price-elastic demand for lemonade gets more inelastic, thus allowing for price increases without affecting the demand.
The demand of a new day can be forecasted on the basis of the previously recorded daily demand data, which forms a time series. The two most common forecasting methods for time series are the Simple Moving Average and the Exponentially Weighted Moving Average methods. See https://people.duke.edu/~rnau/411avg.htm. In the LemonadeStand-1 model, the Simple Moving Average method is used.
A Bill of Materials (BoM) defines the composition of a product in the form of a list of component items, each with a quantity, as required for assembling a production unit. In general, a component item may also have a BoM, i.e. be composed of other items, such that a nested composition tree is obatined.
In the case of a lemonade stand with lemonade as a product, the production unit imay be a 3.5 ltr pitcher of lemonade, so we may have the following BoM:
{"Lemon": 3, "Water": 2.5, "IceCubes": 50, "Sugar": 0.3, "PaperCup": 1}
The production quantity (in number of batches) is planned according to the demand forecast, but under the constraints of using the available input items from the inventory.
There are many reasons for holding inventory including buffering against uncertainties in demand, supply, delivery and manufacturing. Having inventory allows for a smoother operation. There is, however, a problem with having too much inventory. Excess inventory can lead to spoilage and obsolescence. Also, spending too much on inventory limits the resources available for other activities and investments. Inventory analysis is essentially the determination of the right amount of inventory of the right product in the right location. On an operational level, a firm has to decide when to issue a replenishment order and how much to order. This requires a tactical decision about the replenishment policies for its inventories.
The two most important replenishment policies are:
Both policies make a trade-off between cost and level of service
, which is a vague concept that can be operationalized in different ways.
A common metric for the service level is the Cycle Service Level (CSL), which is the probability that there will not be
a stock out within a replenishment cycle. An inventory policy can be designed to minimize the costs while achieving an expected CSL
of, say, 95%, which is one minus the probability of a stock out occurring.
The total cost is the sum of purchase cost (per unit), order cost (per order),
holding cost (per time unit) and shortage (or stock-out) cost (per event),
which are the costs of not having an item in stock when it is ordered.
The LemonadeStand-2 model modifies and extends the LemonadeStand-1 model by
Adding inventory management:
Adding management of perishable items:
Adding a generic market model:
getDailyDemandQuantity()
function
representing a random variable.quantity
attribute by invoking the LemonadeMarket's
getDailyDemandQuantity()
function.getDailyDemandQuantity()
function computes a daily demand quantity
on the basis of a weather model.These changes lead to the following information design model:
Notice how functions representing random variables, like serviceDuration()
and recurrence()
,
are marked with the keyword (or UML stereotype) «rv» standing for "random variable".
ON (event type) | DO (event routine) |
CustomerArrival( sd) @ t |
INCREMENT sd.queueLength IF sd.queueLength = 1 THEN SCHEDULE CustomerDeparture( sd) @ (t + sd.serviceDuration()) |
Conceptual rule models | Rule design models |
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