A Lemonade Stand as a Manufacturing Company Subject to Weather Conditions Back to simulation
Classification tags: business operations management, DES, next-event time progression
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 in stock and the budget available for purchasing additional inpute items.
Following the Object Event Modeling and Simulation (OEM&S) paradigm, we first model the system's object types (defining its state structure) together with its event types in an information model, and then the system's dynamics in the form of event rules in a process model.
The basic version of the LSG model contains the following object types:
and the following event types:
Notice that the component types InputInventoryItem and BomItemPerBatch can be implemented in the form of
the map-valued properties inputInventoryItems and bomItemsPerBatch holding values like
{"Lemon": 3, "Water": 2.5, "IceCubes": 50, "Sugar": 0.3, "PaperCup": 1}
These special properties, and the behavior operations of SingleProductCompany instances are described in the following diagram:
T.B.D.