Littlefield simulation answer

Littlefield Laboratories:[footnoteRef:1] [1: This case note was originally written by Samuel C. Wood and Sunil Kumar, Stanford University Graduate School of Business. Edits were made in 2005-2007 by Gregory Heim, Assistant Professor, Boston College, for use at Boston College. Further edits were made by Drew Prince, Adjunct Professor University of Dayton.]
OPS 301 Fall 17

Assignment 2: Customer Responsiveness

Objective

To build on the concepts learned in Game 1 by adding decisions in two areas: inventory management and contract or lead time management.

Background

Littlefield Laboratories (LL) has opened another lab. The new lab uses the same process

as the lab in Assignment 1 “Capacity Management at Littlefield Labs” — neither the process

sequence nor the process time distributions at each machine have changed. On day 0,

the lab began operations with three preparers, one tester, and one centrifuge, and an inventory

of 160 test kits. This left the lab with $1,000,000 in reserves. Customer demand continues

to be random, but the long-run average demand will not change over the product’s

268-day lifetime. At the end of this lifetime, demand will end abruptly and lab operations

will be terminated. At this point, all capacity and remaining inventory will be useless, and

thus have no value.

Management would like to charge the higher prices that customers would pay for dramatically

shorter lead times. However, historic lead times often extend into several days, so management has been unwilling to quote the shorter lead times.

Operations Policies at Littlefield

LT uses a Reorder Point / Order Quantity raw material purchase policy. That is, test kits are purchased as soon as the following three criteria are all met: (1) the inventory of test kits is less than or equal to the reorder point, (2) there are no orders for kits currently outstanding, and (3) the lab has sufficient cash to purchase the reorder quantity. No order is placed if any of these three criteria are not met. So, for example, a team could prevent kit orders from being placed at all by setting the order quantity so high that there is insufficient cash to place an order.

A reliable supplier delivers exactly the order quantity of kits, four days after the order is

placed.

Kits (raw materials) cost $900 each.

Inventory Holding Cost is 30% per year per kit, or $.7397 per Kit per day. ($.7397 x 365 = $270 per year and $270/$900 = 30%).

There is also a fixed cost of $1,500 per shipment of raw kits, independent of the shipment size.

The revenue earned from filled orders increases the cash balance. The balance earns interest (compounded every simulated day) at a compounded rate of 10% per year. There are no taxes. All fixed overhead over which you have no control, such as salaries, rent, utilities, etc. are ignored. To

reduce the chance of bankruptcy, you are not allowed to purchase a machine if the resulting cash balance would be too low to purchase an order of raw materials at the current order quantity.

The current reorder point and reorder quantity can be changed by clicking on “Edit Data” on the Materials Buffer icon.

When the second simulation begins, Littlefield has 3 Preparer machines, 1 Tester and 1 Centrifuge.

The times to perform each step are:

Step 1

Step 2

Step 3

Step 4

Preparer

Tester

Centrifuge

Tester

5.3 hours

0.5 hours

1.8 hours

1.4 hours

Note: The Tester is used in both Step 2 and Step 4.

In Assignment 2, your team will make decisions in 4 areas.

The first 2 decisions are the same as in Assignment 1:

1. Buying and selling machines. You may buy or sell machines, and thereby alter capacity, by clicking on the desired station and then the “edit data” button on the resulting menu. The number of machines you select displays as “Station Count”. Sample preparing machines cost $50,000, testing machines cost $40,000 and centrifuges cost $60,000. Any machine can be sold for a retirement price of $15,000, provided there is at least one other machine left at the station.