A Lemonade Stand as a Manufacturing Company Subject to Weather Conditions Back to simulation

Model name: Lemonade-Stand-1, available on Simulation-for-Education.

Copyright Gerd Wagner (CC BY-NC), created on 3/13/2018 with the Object Event Simulation (OES) framework OESjs, last modified on 3/14/2018, with contributions by Ke Xu | OESjs Credits

Classification tags: business operations management, DES, next-event time progression

System Narrative

A lemonade seller makes lemonade in pitchers and sells it in paper cups at a stand in a street market. Each day consists of the following process steps and phases:

The day starts with making planning decisions (demand forecasting, production planning and sales price planning) and purchasing the required input materials (lemons, sugar, etc.).
Some time later, the ordered input materials are delivered, the planned quantity of lemonade is produced and the stand is opened.
Then, customers arrive randomly and order a cup of lemonade. As long as there is still lemonade in stock, customer orders are served.
At the end of the day, the lemonade stand is closed and the remaining lemonade and expired input items are dumped.

The Lemonade Stand Game was developed in 1973 by Bob Jamison for mainframe computers and was later ported to the Apple II platform in 1979 and distributed by Apple throughout the 1980s.

Model Description

A lemonade stand can be modeled in a generic way as an instance of a single product manufacturing company that uses an input inventory and transforms input items into an output item (the product). We make a series of three increasingly complex models of lemonade stands:

In the basic model, we build a scenario with just one lemonade stand (a monopoly) and we abstract away from market conditions, customers and individual customer orders as well as from suppliers, individual replenishment orders and corresponding deliveries, inventory management, marketing activities and competition. Customer orders are aggregated into a random daily demand quantity. An aggregate replenishment order is directly converted into a corresponding daily delivery. Due to reliable daily deliveries there is no need for inventory management.
In the second model, we consider individual (possibly delayed) deliveries, inventory management and market conditions dominated by the weather.
In the third model, we consider individual customers and we build a scenario with several lemonade stands that compete with each other.

►Background

The Lemonade Stand game allows active learning of the following topics:

Price Elasticity of Demand

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.
Sales Price Planning

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.
Demand Forecasting

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.
Bill of Materials

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}
```
Production Planning

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.

►Simulation Design Model ^?

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.

Information Design Model ^?

The basic version of the LSG model contains the following object types:

SingleProductCompany
InputItemType as a subtype of ItemType
OutputItemType as a subtype of ItemType

and the following event types:

StartOfDay
DailyDelivery
DailyDemand
EndOfDay

An information design model describing object types and 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:

An OO class model with behavior operations of *SingleProductCompany* instances.

Process Design Model ^?

T.B.D.

A Lemonade Stand as a Manufacturing Company Subject to Weather Conditions Back to simulation

System Narrative

Model Description

►Background

►Simulation Design Model ^?

Information Design Model ^?

Process Design Model ^?

►See also

Other OES Models for the Same System/Problem/Domain

A Lemonade Stand as a Manufacturing Company Subject to Weather Conditions Back to simulation

System Narrative

Model Description

►Background

►Simulation Design Model ?

Information Design Model ?

Process Design Model ?

►See also

Other OES Models for the Same System/Problem/Domain

►Simulation Design Model ^?

Information Design Model ^?

Process Design Model ^?