QUESTION 7 [47 MARKS] Simulation models are mathematical models used for replicating real-world problems. a) Although simulation is applied widely this type of approach has certain limitations e.g. simulation does not provide an optimal solution. Discuss the areas of application of simulation, as well as the other limitations of simulation. (22) b) Ace is a retailer that distributes various products. However, Ace is particularly concerned with the inventory and transport cost of the gadget. Each gadget costs R75 and sells for R125. Ace wants to minimize total costs (inventory carrying, stockout and transport costs) in order to maximize the profit associated with the gadget. LOGISTICS MANAGEMENT SYSTEMS A SUPPLEMENTARY EXAMINATION 2017 5 To this end Ace decided to investigate a specific inventory policy based on monthly demand and the associated least transport cost. The following inventory policy information is available and should be investigated: Inventory policy Ace receives monthly deliveries (80 units) from the supplier at the beginning of each month. Inventory carrying cost is R15 per gadget and a cost of R30 for a stockout is assigned. Starting stock =0 gadgets. Ace has gathered the demand information for the past 20 months: 120701009080110100907080 1009011080100110809010090 The supplier normally charges a transport rate of R5/gadget. Use this information for five weeks to calculate the average weekly profit. (25) QUESTION 7 [47 MARKS] Simulation models are mathematical models used for replicating real-world problems. a) Although simulation is applied widely this type of approach has certain limitations e.g. simulation does not provide an optimal solution. Discuss the areas of application of simulation, as well as the other limitations of simulation. (22) b) Ace is a retailer that distributes various products. However, Ace is particularly concerned with the inventory and transport cost of the gadget. Each gadget costs R75 and sells for R125. Ace wants to minimize total costs (inventory carrying, stockout and transport costs) in order to maximize the profit associated with the gadget. LOGISTICS MANAGEMENT SYSTEMS A SUPPLEMENTARY EXAMINATION 2017 5 To this end Ace decided to investigate a specific inventory policy based on monthly demand and the associated least transport cost. The following inventory policy information is available and should be investigated: Inventory policy Ace receives monthly deliveries (80 units) from the supplier at the beginning of each month. Inventory carrying cost is R15 per gadget and a cost of R30 for a stockout is assigned. Starting stock =0 gadgets. Ace has gathered the demand information for the past 20 months: 120701009080110100907080 1009011080100110809010090 The supplier normally charges a transport rate of R5/gadget. Use this information for five weeks to calculate the average weekly profit. (25)