This chapter is an introduction to how computer simulation can be used in business to improve the decisions that business managers make. In the scenarios that this chapter addresses, improved decisions result in increased profit, reduced cost, and better service to customers. The chapter first describes basic business concepts such as profit, customer service, capacity, and demand. Understanding these terms is important because one purpose that simulation can serve is to help managers make decisions about how much investment should be made in the capacity to make goods and provide services in response to customer demand, so that profit and customer service are improved. A familiar setting is used as an example in this chapter, specifically, a fast food restaurant. The lessons in this chapter lead to a description of how a computer simulation model might be created to mimic the operations of the restaurant to help a manager understand how different decisions can lead to different levels of profit and customer service. Essential background information and skills are provided throughout the chapter, such as the concept of probability distributions and Excel spreadsheet functions that are required to create the simulation model.
This chapter seeks to:
- Introduce business terminology that is generally applicable to all businesses.
- Define what demand, capacity, inventory, and customer service mean in business.
- Provide a basic understanding of variation and uncertainty.
- Describe how variation and uncertainty make business decisions more difficult.
- Explain how computer simulation can take uncertainty into account to enable better decisions.
- Provide a tutorial on how to build a simple spreadsheet simulation in Microsoft Excel.
As such, this chapter introduces simulation to students in the hope that they will become excited about the topic and decide to study it further, along with related topics such as probability and statistics. Those who find this subject matter interesting might want to consider jobs in the field of industrial engineering or in businesses where the kind of analysis that is described in this chapter is studied and used. The chapter also suggests that, while being a business manager is not usually considered to be a scientific job, scientific methods like simulation can be used in businesses to improve profit.