Part 1: Ordering Calendars at Walton Bookstore. This example illustrates the problem of using averages instead of distributions. How does this example illustrate the flaw of averages?
Part 2: What are the advantages and limitations of simulation models? Include specific comparisons to LP models in your comments.
Ordering Calendars at Walton Bookstore
In August, Walton Bookstore must decide how many of next year’s nature calendars to order. Each calendar costs the bookstore $7.50 and sells for $10. After January 1, all unsold calendars will be returned to the publisher for a refund of $2.50 per calendar. Waltonbelieves that the number of calendars it can sell by January 1 follows some probability distribution with mean 200. Walton believes that ordering to the average demand, that is, ordering 200 calendars, is a good decision. Is it?
Objective To illustrate the difference between a deterministic model with a best guess for uncertain inputs and a simulation model that incorporates uncertainty explicitly.