In order to solve this problem, your spreadsheet program will need to have a function that produces random numbers [@RAND in Lotus 123 and RAND ( ) in Excel]. The purpose of this exercise is to construct a simulation of a periodic-review inventory system with random demand. We assume that the reader is familiar with the fundamentals of Monte Carlo simulation. Your spreadsheet should allow for cell locations for storing values of the holding cost, the penalty cost, the proportional order cost, the order-up-to point, the initial inventory, and the mean and the standard deviation of periodic demand. An efficient means of generating an observation from a standard normal variate is the formula

34. Newsvendor simulator. In order to solve this problem, your spreadsheet program will need to have a function that produces random numbers (@RAND in Lotus 1-2-3 and RAND() in Excel]. The purpose of this exercise is to construct a simulation of a peri- odic-review inventory system with random demand. We assume that the reader is familiar with the fundamentals of Monte Carlo simulation. Your spreadsheet should allow for cell locations for storing values of the holding cost, the penalty cost, the proportional order cost, the order-up-to point, the initial inventory, and the mean and the standard deviation of periodic demand. An efficient means of generating an observation from a standard normal variate is the formula Z= [-2 In(UD)].5 cos (21U2), where U and U2 are two independent draws from a (0, 1) uniform distribution. (See, for example, Fishman, 1973.) Note that two independent calls of @RAND are required. Since Z is approximately standard normal, the demand X is given by X = oZ + u where u and o are the mean and the standard deviation of one period's demand. A suggested layout of the spreadsheet is NEWSVENDOR SIMULATOR Holding cost = Mean demand = Order cost = Std. dev. demand = Penalty cost = Initial inventory = Order-up-to point = Starting Order Ending Holding Penalty Order Period InventoryQuantity Demand Inventory Cost Cost Cost 1 2 3 20 Totals Each time you recalculate, the simulator will gencratc a different scquence of de- mands. A set of suggested parameters is h = 2, c = 5, p = 20, u = 100, o= 20 10 - 50, Order-up-to point = 150. 34. Newsvendor simulator. In order to solve this problem, your spreadsheet program will need to have a function that produces random numbers (@RAND in Lotus 1-2-3 and RAND() in Excel]. The purpose of this exercise is to construct a simulation of a peri- odic-review inventory system with random demand. We assume that the reader is familiar with the fundamentals of Monte Carlo simulation. Your spreadsheet should allow for cell locations for storing values of the holding cost, the penalty cost, the proportional order cost, the order-up-to point, the initial inventory, and the mean and the standard deviation of periodic demand. An efficient means of generating an observation from a standard normal variate is the formula Z= [-2 In(UD)].5 cos (21U2), where U and U2 are two independent draws from a (0, 1) uniform distribution. (See, for example, Fishman, 1973.) Note that two independent calls of @RAND are required. Since Z is approximately standard normal, the demand X is given by X = oZ + u where u and o are the mean and the standard deviation of one period's demand. A suggested layout of the spreadsheet is NEWSVENDOR SIMULATOR Holding cost = Mean demand = Order cost = Std. dev. demand = Penalty cost = Initial inventory = Order-up-to point = Starting Order Ending Holding Penalty Order Period InventoryQuantity Demand Inventory Cost Cost Cost 1 2 3 20 Totals Each time you recalculate, the simulator will gencratc a different scquence of de- mands. A set of suggested parameters is h = 2, c = 5, p = 20, u = 100, o= 20 10 - 50, Order-up-to point = 150