Simulation
A simulation is a model of a real activity or process. When a process is simulated, a model is created that will behave like that process.
Models may be physical or abstract. A computer model is an example of an abstract model as are designer’s drawings or mathematical or chemical equations.
Physical models are tangible and three-dimensional. Manufacture’s prototypes, architectural models of finished structures are example of physical models.
A simulation model is used in decision making because it allows managers to:
- Anticipate competitive responses to strategy decisions;
- Make decisions under a wide variety of changing conditions;
- Avoid interruptions of normal business operations that real-life experimentation can cause;
- Avoid the time loss and expense associated with experimenting with actual company assets;
- Avoid annoying the customers and taking facilities out of service while training or experimentation is being conducted.
Queuing models/waiting-line models help managers decide what length of waiting line or queue would be optimal.
Queues also form in manufacturing as goods are funneled through a production run. Just-in-time inventory is used to help solve the problem.
JIT delivery of raw materials or other kinds of normal inventories to correspond to production schedules has led to the elimination of the need to warehouse items.
Game theory attempts to predict how people/organizations will behave in competitive situations. Managers apply game theory in situations in which organizations compete against one another in regard to price, product development, advertising, and distribution systems.
The use of game theory has been exploding in the last few years in corporate takeovers, negotiations, and competitive bidding.
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