Chapter 2

Monte-Carlo Simulation
Feri Afrinaldi, Ph.D
Department of Industrial Engineering
Andalas University
 Contents
Monte-Carlo simulation using Oracle Crystal
Ball
Inventory problem: The News dealers problem
Operations cost: Butson Stores

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MONTE-CARLO SIMULATION USING
ORACLE CRYSTAL BALL

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 Operations cost: Butson Stores
Example: Butson Stores faces a problem in maintaining sufficient cash
balances for operations over the first six months of the year. Each month,
they must pay certain fixed costs and taxes (see the following table), as
well as materials costs that run about 80% of the current months sales.
Monthly cash receipts consists of revenues from the previous months
sales, as well as 0.5% interest on short-term balances. The company enters
the six-month period with a cash balance of $250,000 and wishes to
maintain at least that balance each month in order to cover cash needs.
December sales of $1.54 million have just been recorded. If Butson
finishes a month with less than $250,000 in cash, the company can take
out a one-month loan at 1% interest. The principal and interest are repaid
in the following month. Butsons marketing department has made
estimates (in thousands) for the mean and standard deviation of sales in
each of the next six months (see table). Given the uncertainty in sales,
Butson would like to know how large their maximum monthly loan is likely
to be, and how likely the are to exceed their current credit limit of
$750,000. Finally, the company would like to know how much on average
they will have to pay in interest costs for loans.

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 Operations cost: Butson Stores
Example (cont):
Fixed costs and taxes Monthly sales
Month Fixed Costs and taxes Month Mean Sales Standard Deviation
(000) (000) (000)
January 250 January 1800 80
February 250 February 1500 80
March 400 March 1900 100
April 250
April 2600 125
May 250
May 2400 120
June 350
June 1900 90

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 References
Banks, J., Carson II, J.S. (2010). Discrete-Event
System Simulation (5th Edition). Pearson
Education, Upper Saddle River, NJ.
Powell, S.G., Baker, K.R. (2010). Management
Science: The Art of Modeling with
Spreadsheets. John Wiley & Sons.
Taha, H.A. (2007). Operations Research: An
Introduction. Upper Saddle River, NJ: Pearson
Education.

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