IMPLEMENTING STRATEGIC PLANNING
UNDER UNCERTAINTY USING PALISADE’S
RISKOPTIMIZER®
Tayo Fabusuyi
Numeritics
Palisade’s Risk Conference
March 2011
Outline
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

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Introduction and Context
Objectives
Sources of Uncertainty
Model Description
Model Output
Discussion of Findings
Introduction and Context




Manufacturing entity that produces degreasers,
descalers, neutralizers and industrial cleaners
Firm recently changed ownership with previous
products re-branded
Products are sold in 5, 15, 55 and 275 gallon
containers
Customers are primarily wholesale (regional or
national chains) and corporate clients
Objectives


Positive Economic Profit
Revenue Maximization
Uncertain Variables

Cost per unit of product
 Health
premiums, utilities cost (dynamic pricing), labor
cost (overtime), transportation/gasoline related cost,
variations in raw material prices etc.
 Uncertainty

addressed using normal distribution
Demand
 Variability
distribution
in demand addressed using triangular
Model Description
Max:
Subject to:
Model Modifications

Unmet Demand
 Structured

as a soft constraint with attached penalty
Profit Variability
 Included
as a hard constraint with a specified standard
deviation threshold
Model Implementation
Begining Inventory
Produced
Total Available
Units Sold
Sales price
Raw Material 1
Raw Material 2
Labor (hours)
Machine Time
Cost Price
Profit/unit sold
Overage
Unit storage cost
Overage Cost
Actual Demand
Worst
Most Likely
Best
Unmet Demand
Descaler (5)
Descaler (15)
Descaler (55)
Descaler (275)
Degreaser (5)
34
1478
1512
1212
2.75
0.022
0.000
0.25
0.1875
2.02
0.73
300
0.12
36.00
1212
916
1280
1440
73
960
1033
862
6.15
0.066
0.000
0.32
0.2400
3.64
2.51
171
0.26
44.55
862
642
895
1048
0
1616
1616
521
13.42
0.242
0.000
0.72
0.5400
7.78
5.64
1095
0.33
361.24
521
394
550
620
112
1283
1395
773
21.70
1.210
0.000
1.32
0.9900
13.33
8.37
622
0.47
292.50
773
583
822
913
5
997
1002
622
1.71
0.000
0.018
0.25
0.1875
0.94
0.77
380
0.12
45.56
622
470
657
740
0
0
0
0
0
Model Implementation (cont.)
Model Implementation (cont.)
Utilized
Available
Raw Material 1
Raw Material 2
Labor (Man Hour)
Machine Time
2415.22
1672.96
8389.67
6532.27
Cost of Capital
Aggregate Unmet Demand (Boolean)
Demand Shortage
Penalty Threshold
6333.33
0
0
0.25
Revenue
Profit
Overage Cost
NOPAT
$
$
$
64,744.64
19,951.05
1485.69
11,970.63
3000
2000
12800
7200
Mean (Best Simulation) = 64745.8007
Model Output
Results
Valid Simulations
18
Total Simulations
32
Original Value
$
52,395.75
+ soft constraint penalties
$
= result
$
51,645.75
$
64,745.80
Best Value Found
+ soft constraint penalties
$
= result
$
Best Simulation Number
Time to Find Best Value
Reason Optimization Stopped
(750.00)
64,745.80
26
0:08:44
Elapsed time
Time Optimization Started
3/24/2011 16:45
Time Optimization Finished
3/24/2011 16:55
Total Optimization Time
0:10:09
Adjustable Cell Values
P r oduct
O r igina l
Bes t
Descaler (5)
1270
1478
Descaler (15)
842
960
Descaler (55)
1616
1616
Descaler (275)
804
1283
Degreaser (5)
997
997
Degreaser (15)
538
1217
Degreaser (55)
448
875
Degreaser (275)
359
622
Dual (5)
324
1375
Dual (15)
591
591
Dual (55)
912
912
Dual (275)
324
795
Resource Constraint Findings
Resource Constraints
Description
Raw Material 1
Labor
= 0 <= 'Rev'!$C$26 <= 'Rev'!$D$26
= 0 <= 'Rev'!$C$28 <= 'Rev'!$D$28
Constraint Type
Hard
Hard
Evaluation Time
Iteration
Iteration
87.50%
75.00%
100.00%
100.00%
Raw Material 2
Machine Time
= 0 <= 'Rev'!$C$27 <= 'Rev'!$D$27
= 0 <= 'Rev'!$C$29 <= 'Rev'!$D$29
Constraint Type
Hard
Hard
Evaluation Time
Iteration
Iteration
62.50%
66.67%
100.00%
100.00%
Definition
Satisfied for % of Simulations
Satisfied for % of Valid Simulations
Description
Definition
Satisfied for % of Simulations
Satisfied for % of Valid Simulations
Results for Goal Related Constraints
Goal Related Constraints
Description
EVA
Definition
='Rev'!$C$41 >= 'Rev'!$C$32
Constraint Type
Hard
Evaluation Time
Iteration
Satisfied for % of Simulations
100.00%
Satisfied for % of Valid Simulations
100.00%
Description
NOPAT DEV
Definition
=RiskStdDev('Rev'!$C$41) <= 1500
Constraint Type
Hard
Evaluation Time
Simulation
Satisfied for % of Simulations
50.00%
Satisfied for % of Valid Simulations
100.00%
Description
Shortage Penalty
Definition
='Rev'!$C$34 <= 0.25
Constraint Type
Soft
Evaluation Time
Simulation
Satisfied for % of Simulations
29.17%
Satisfied for % of Valid Simulations
25.00%
Penalty Function
Penalty of Best Result
=DEVIATION*1000
$
-
Facts behind the figures


All production steps for which there were excess
capacity or where real time changes could be quickly
effected were considered to be neither restrictive nor
critical and were therefore omitted
Results obtained may not be implementable in every
detail but should be sufficiently valid for bench-marking
purposes
Value Added by the approach




Generated the ideal quantity to be produced of each
product sold and provided insights pointing to a more
productive use of existing facilities
Reveal potential bottlenecks in the production process
Invaluable information was revealed by relaxing
the demand constraint
Provision of a robust vehicle for evaluating
alternative production plans
Questions & Contact Information
Questions?
Tayo Fabusuyi
Numeritics, Pittsburgh, PA
Tayo.Fabusuyi@numeritics.com
+1.412.874.4417