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PJ_freddie

by jose costas (Submitted: 06/26/2013)

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## WHAT IS IT?

AN INVENTORY MANAGEMENT EXAMPLE.
One of the daily neswpaper that Freddie sells from his newsstand is the "Financial XYZ".
A distributor brings the day's copies of the Financial XYZ to the newsstand early in the morning.
Any copies unsold at the end of the day are returned to the distributor the next morning.
However, to encourage ordering a large number of copies, the distributor does give a small refund for unsold copies.

Here are the Freddie's cost figures:
Freddie pays $1.50 per copy delivered.
Freddie sells at $2.50 per copy.
Freddie's refund is $0.50 per unsold copy.

Partially because of the refund, Freddie has always taken a plentiful supply.
However, he has become concerned about paying so much for copies that then have to be returned unsold, particularly since this has been ocurring nearly every day.

To investigate this further, he has compiled the following record of his daily demand:
Freddie sells anywhere between 40 and 70 copies on any given day. The frequency is distributed uniform (roughly equal each number in between 40 - 70).

The decision Freddie neds to make iw the number of copies to order per day from the distributor.

His objective is to maximize his average daily profit.

## HOW IT WORKS

Freddie is modeled as a mechanism who goes along a cycle of states.
One state is to purchase; then simulate the demand for this day; then do the sales; then record the results.

One entity traverse the system during each cycle. Each complete cycle makes a day. Next Freddie's cycle, another entity enters the system.

Hence, the entity carries the data of what happens in a concrete day. So, we have one entity per day.

The user limits the amount of history to be ketp in the system for visibility and calculations. Oldest stuff are removed in order to prevent degradation of the runtime.

## HOW TO USE IT

The user sets the slider bars with the parameters of the experiment she wants to run.

Then, she presses the setup followed by the go buttom.

There is a switch available to set the system verbose (debug mode on). If so, the command center is showing details of what the system is doing.

## THINGS TO NOTICE

Plots refresh at the end of the day. The tick advances a fraction of day each time, in order to give Freddie enough ticks to do the complete task of the day.

## THINGS TO TRY

Replicate the same experimental conditions to realize variability.

Compare short experiments (like 20 days) versus long experiments (like 1,000 days)

Experiment situations that you know what the outcome should be. This is key to verify the model. e.g. you knwo that if Freddie buys the minimum demand, 40, the gains will be 40.

## EXTENDING THE MODEL

Experiment sensitivity by changing parameters; e.g. the price of the purchase, the sales price, the amount of refunding, ...

## NETLOGO FEATURES

Have a look about the cautions taken in order to prevent failures (bugs) in the model.

Alter parts of the code so to force exceptions to raise and check whether they are trapped or not.

Ask yourself about usability as a quality factor for the end-user.

Read critically the job instructions and aids provided by the interface, the info tab, the readibility of the code ...

## RELATED MODELS

This problem can be treated as an "stochastic one-period inventory model for perishable products".

## CREDITS AND REFERENCES

Hillier-Lieberman. Operations Research. McGraw-Hill, 2005

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