Littlefield Simulation Game

A Report Submitted to
Instructor: Prof. Sachin Jayaswal

In partial fulfilment of the requirements of the course

OM-II (2013-14)

Group: D-15
Team Name: xibalba
Section: D
On
19 March 2014

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

Overall Analysis and Strategy

Key decision questions before the game
started:
1. Demand Prediction
2. Capacity Planning
3. Inventory Management
4. Clearing Backlog Orders

= 4.367 + 0.397
Putting X = 60, we forecasted the stable
demand to be around 35 orders per day. In
retrospect, due to lack of sufficient data,
we fell short of actual demand by 15 units,
which also hurt our further decisions. We
lost valuable time due to this.

During the game:

5. Scheduling at Station Two
6. Contract Decisions
7. Lot Sizing and Lead Times
8. Decisions related to Debt
9. WIP Limit Calculations
Towards the end of the game, following
decisions became important:
10. When to sell and how much to sell?
11. What Capacity and Inventory settings
to leave when the game ends?

Table 2: Predicted versus Actual Demand

I. BEFORE THE START

Inventory Decisions
Demand Prediction
The demand was expected to follow a
trapezoidal shape. We used linear
regression to predict the stable demand
level which was expected to be achieved
by day 60. However, when the game
started, we only had true data for 17 days,
since the inventory was exhausted after
this period. The result of the analysis gave
the regression line to be (See fig. 1):

The next decision was to set inventory

parameters EOQ and ROP. Once the
game opened, only ten days of increasing
demand were left; while our first shipment
of inventory would have arrived only on
day 62 (Arrival of previous order day 55;
lead time of 7 days after that). Therefore,
we decided to calculate EOQ based on the
stable demand prediction.

= 35 365 = 12775
= $ 50
= 0.12 $10 60 = $ 72 / /
Putting in the values, we got the EOQ as:
= 133

Table 1: Demand Forecast based on first 17 days

Also, to calculate ROP,

= +
= 7 35 + 0 = 245
(
= 0 )

Since EOQ < ROP, this will mean that our

inventory will get exhausted pretty soon.
Minimum we need to order, therefore, is
ROP, i.e., 245 units per week.

with a purchase of 9, 18 and 19 machines

for station 1, 2 and 3 respectively to
make the total count of machines to reach
12, 24 and 27 respectively.

Initial Capacity Planning

We later increased the machine count to

20, 30 and 37 in order to reduce lead time
to bid for level 3 contracts. These numbers
were arrived using the 4 step model which
is described towards the end of section II.

This is one area where the group feels it

did a fatal mistake. Instead of going for
heavy investments at the very beginning
and switching to highest paying contracts,
we decided to invest in capacity gradually
and move from lowest paying to highest
paying contract, after generating money
through operations only. In retrospect, this
wasnt a good decision, as the demand
period was quite short and it made sense to
invest as early as possible to reap benefits
for a larger period of time.
To begin with, station 2 and station 3
appeared to be the bottleneck as their
utilization was stuck at 100% whereas
station 1 was underutilized (Fig 1)

Clearing Backlog Orders

Another Mistake! We missed the fact that
we can clear the backlog orders quickly by
setting WIP limit to 0 in the very
beginning. This cost us 20 valuable days,
where new orders piled up as backlog,
which we were relying to clear by using
our capacity. It took us some time to
realize and correct this mistake.
II. DURING THE GAME
The following five decisions were very
closely related to each other, and were
closely monitored during the entire game:
Contract decision, WIP, Lot Sizing,
scheduling at station two and Debt. We
therefore, first give a brief overview and
rationale for each of them. Well then
present a comprehensive mathematical
model that we used to make these
decisions.

Figure 3: Utilization status when the game opened

A quick analysis showed that (for a lot size

of 60) for a balanced line, the ratio of
machines required at station 1, 2 and 3
should be 1:2:2.2, which will give a
streamlined throughput of 3.2 orders per
day per machine.
Going by our overall approach of no debt
and gradual investment, we decided to buy
2 more machines each for station 2 and 3.
Considering the need for high capacity,
this decision was quickly supplemented

Contract Decisions
We started with level 1 contract which
gave us $ 7500 for each completed order.
Very soon we realized that we are capable
of moving to level 2 which is
economically better. Keeping this in mind,
we switched to level 2 contracts on day 82.
The move from level 2 to level 3 wasnt
that easy. A quick analysis showed that
achieving lead time of 0.5 days would not
be possible with the capacity that we had,
even if we reduce the lot size and the
number of accepted orders. We, therefore,
invested in capacity and chose a

combination of WIP and lot size that

would give us a theoretical lead time of 0.6
days. This switch was made on day 122
and actual lead time achieved was close to
0.59 days. Why didnt we push for a lead
time less than 0.5 days? It was already day
122, maximum demand was still not
known to us (we were accepting orders
less than the actual demand to meet lead
time requirements), the game stalled twice
for brief period of 4 days each therefore,
the payback of investment was uncertain.
Following our conservative strategy, we
decided against making any new
investments after this point. In retrospect,
this was again a bad decision. A quick
breakeven analysis (see table 2) showed
that the investments would pay back very
quickly. This, however, didnt become
visible to us since we were not exposed to
the total demand in the market.
Lot Sizing and Lead Times
The question of lot size came into picture
when we were trying to push the lead time
below 0.5 days. As per our calculations,
for a very large number of machines, lot
size of 10 would have given best results.
However, since we had limited number of
machines at our disposal, and since we
were constrained by the capacity towards
the later part, To calculate this, we first
calculated data tables with lot size and
WIP limit as two parameters, to calculate
Time in System (= Time in Queue + Time
of processing) for each of the stations. The
total lead time for the order would be the
sum of these three times. We then chose
the minimum possible lead time that was
possible with the number of servers that
we had at our disposal. Using this
approach, for (20, 30, 37) machines,
optimal lot size for us came out to be 20
units per lot. The tables are shown in
Appendix 2. For a system with number of
servers equal to the machines we had
bought, total processing time versus

number of lots is shown in the following

graph:

Figure 4: Analysis for lot size

Decisions Related to Debt

Our initial aversion for raising debt was
very soon changed, when we realized that
capacity (rather than immediate cash)
would be the key to success. Moreover, the
cost of debt was also much lower than the
benefits achieved from buying the
machines. For example, the payback for a
debt of $ 750,000 with interest would
break even in less than two days! (See
Table 2)
Assumption: Level 2 Contracts
$ 750000
Debt Raised
600
Interest for 2 days
750600
Total
< 2 Days
Payback
Table 2: Illustrative Break Even Analysis

Therefore, after day 80, Debt was raised as

and when required, and was paid back as
soon as the cash became available.
WIP
Calculating WIP number was relatively
easier. We used Littles Law for this:
=
=

 = =
Towards the later part when we had to
push the lead time below 0.5 days, we
chose a different procedure to estimate the
WIP that will give the maximum revenue
within our capacity constraints. Details of
the method are provided in next subsection
and Appendix 3.
Mathematical Model
As mentioned earlier, we were aversive of
losing cash by investing in machines after
day 122. Therefore, we kept the number of
servers constant and decided to calculate
optimum lot size and WIP which will give
us the maximum revenue/day with the
capacity constraints. We used the
following steps to take decisions about the
variables mentioned in section 2,
especially WIP and Lot Size.

Step 3: We then summed up total system

times of each of the stations to get a
ballpark number of lead time (Appendix
2). Excluding the infeasible solutions, we
chose the lot size and effective demand
value which gave the least lead time for
the number of machines that we had.
Step 4: For the chosen lot size, we
empirically calculated the throughput rate
when no queue was present using 3 day
average after implementing the decision at
a very low WIP. We then worked out the
trade-off by increasing WIP, which will
lead to higher queue times, thereby
increasing lead time => lower revenues;
while at the same time, it will allow us to
process more orders thereby increasing
the revenues. This analysis gave us the
following graph.

Step 1: We approximated each station

with a queue system and calculated the
queue times as well as processing times for
a given lot size and demand. A screenshot
of the tool is provided below (This excel
tool was provided to us in OM-I by Prof.
Chetan Soman):
Basic Inputs:

Number of Servers, S = 50
Arrival Rate, l = 5
Coefficient of Variation of Inter-arrival time, CV(a) = 1
Service Rate Capacity of each server, m = 0.33333
Coefficient of Variation of Service time, CV(s) = 0

The Waiting Line:

Service:

Average Number Waiting in Queue (Nq) = 0.000 <== The Approximation

Average Waiting Time (Tq) = 7.5E-07

Average Utilization of Servers = 30.00%

Average Number of Customers Receiving Service (Ns) = 15

The Total System (waiting line plus customers being served):

Average Number in the System (N) = 15.000
Average Time in System (Tq + Ts) = 3

Figure 5: Snapshot of tool used to approximate system

times

Step 2: Using this tool, we then created a

data table which showed lead times for
various combinations of demand and lot
size, for each of the stations. These values
are approximate only and are provided in
appendix 2.

Figure 1: Maximizing revenue within capacity

constraints

Based on this, we chose our WIP to be 28,

which was supposed to give us revenue of
$800,000 per day. The actual average was
also very close to this number.
III. TOWARDS THE END
We didnt want to leave to many assets
and inventory when the game was taken
out of our control, since their salvage
value would be lost. This forced us to take
two more decisions:

Selling the Capacity Back

On day 217, we sold all our machines
leaving only 3, 5 and 5 machines at station
1, 2 and 3 respectively. The rationale
behind all these decisions was Not to
leave too many assets for the end when
they will give us no salvage value.

We needed to make the best use of

available resources to get the
maximum benefit out of it.
6. Utilization and Lead times: There
is always a trade-off. We need to
choose a value which gives us the
optimum result, in this case,
maximum revenue.

How much to leave for the last 50 Days

We set back the contract to the very first
level; reduced WIP so that queue times
dont become very high. We also switched
back to a lot size of 60. The rationale
behind all these decisions was again Not
to leave too many assets for the end when
they will give us no salvage value.
IV. KEY LEARNINGS
Operational
1. Forecasting Demand and making
adjustments on it as and when the
new data becomes available.
2. Actual implementation of all the
inventory theory that we had
studied so far.
3. Predicting queue times and system
times by modelling the systems and
then using the results to predict the
lead times.
4. Tweaking with number of servers
and lot sizes to achieve the desired
lead times. This was probably one
of the major learning for us how
to balance utilization and lead
times practically using all the
theory that we had learnt.
5. How to achieve maximum revenue
when the capacity is constrained.

Strategic
1. Go Aggressive. There is no point in
shying away from the investments
if you see the worth of it. We could
have raised the debt in the very
beginning only which we didnt
do.
2. Do
not
underestimate
the
competition: We assumed that in
the very beginning, all teams will
take some time to push the
production forward. This didnt
happen.
Competition
was
aggressive, better prepared and
therefore took an early lead.

APPENDIX 1
DECISION HISTORY
Day

Parameter

91 Max WIP limit

Value

50 Reorder quantity (kits)

2700

91 Decrease Debt

50 Reorder point (kits)

3000

92 Reorder point (kits)

50
50

station 2 machine
count

station 3 machine
count

64 Reorder quantity (kits)

107 Max WIP limit

6000

65 Increase Debt

900,000

65 Increase Debt

1,800,000

65 Increase Debt

2,700,000

65 Increase Debt

3,600,000

station 1 machine
65
count

station 2 machine
count

18

65

65 Increase Debt
65

station 3 machine
count

4,000,000
19

73 Reorder quantity (kits)

2700

77 Reorder quantity (kits)

16800

77 Increase Debt

4,999,999

77 Increase Debt

5,999,998

station 1 machine
77
count

12

station 2 machine
count

24

77

77 Increase Debt
77

station 3 machine
count

13200
62

109 Decrease Debt

5,599,997

109 Decrease Debt

4,599,998

109 Decrease Debt

3,599,999

109 Decrease Debt

2,600,000

109 Decrease Debt

1,700,000

109 Decrease Debt

800,000

109 Decrease Debt

110 Lots per order

110 Increase Debt

900,000

110 Increase Debt

1,800,000

110 Increase Debt

2,700,000

110

station 1 machine
count

20

110

station 2 machine
count

30

110

station 3 machine
count

37

111 Lots per order

111 Reorder quantity (kits)
111 Decrease Debt
112 Lots per order

1
12000
1,800,000
3
1,400,000

27

113 Decrease Debt

1,190,867

114 Decrease Debt

390,867

81 Max WIP limit

88 Max WIP limit

50

18000

112 Decrease Debt

20

91 Reorder point (kits)

6,499,997

6,999,997

79 Max WIP limit

91 Contract number

107 Reorder quantity (kits)

60

2
13980

119 Max WIP limit

40

119 Decrease Debt

124 Contract number

124 Reorder quantity (kits)

15000

124 Reorder point (kits)

16800

124 Max WIP limit

28

134 Max WIP limit

25

140 Max WIP limit

28

151 Reorder quantity (kits)

16800

196 Reorder quantity (kits)

12000

206 Reorder quantity (kits)

8400

station 1 machine
217
count

217

station 2 machine
count

217

station 3 machine
count

217 Lots per order

217 Reorder quantity (kits)

7200

217 Reorder point (kits)

8400

APPENDIX 2
TIME IN SYSTEM FOR VARIOUS LOT SIZE AND DEMANDS

3.355219
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

10.28932
20
21
22

60
7.54
7.56
7.57
7.60
7.62
7.65
7.70
7.75
7.82
7.90
8.02
8.17
8.39
8.69
9.16
9.91
11.34
14.86
36.24
-13.81
-1.37

60
7.56
7.58
7.61

Machine 1 System Times

30
20
15
4.57
3.65
3.36
4.60
3.71
3.58
4.63
3.80
4.05
4.67
3.94
5.52
4.73
4.17
#DIV/0!
4.81
4.63
-0.55
4.93
5.75
0.92
5.10
12.25
1.38
5.37
-4.12
1.59
5.84
0.30
1.70
6.80
1.25
1.75
9.77
1.65
1.78
#DIV/0!
1.85
1.78
-2.31
1.97
1.77
0.65
2.03
1.75
1.61
2.07
1.72
2.07
2.08
1.68
2.32
2.07
1.64
2.48
2.06
1.59
2.57
2.04
1.54
2.63
2.01
1.48
Machine 2 System Times
30
20
15
3.78
2.52
1.89
3.79
2.53
1.89
3.81
2.54
1.90

12
4.08
9.45
-1.38
0.74
1.24
1.45
1.54
1.59
1.60
1.60
1.58
1.55
1.51
1.47
1.42
1.36
1.30
1.24
1.17
1.09
1.01

12
1.51
1.52
1.52

10
-0.46
0.90
1.25
1.40
1.46
1.48
1.48
1.46
1.43
1.39
1.35
1.29
1.23
1.17
1.09
1.02
0.93
0.85
0.75
0.66
0.55

10
1.26
1.26
1.27

23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

5.283225
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

7.66
7.72
7.80
7.91
8.06
8.26
8.54
8.94
9.49
10.29
11.48
13.36
16.55
22.71
38.29
134.18
-91.38
-35.74

60
16.52
16.52
16.53
16.55
16.56
16.59
16.62
16.67
16.74
16.83
16.95
17.13
17.37
17.74
18.29
19.16
20.67
23.67
31.73
100.61
-20.67

3.83
3.86
3.90
3.95
4.03
4.13
4.27
4.47
4.74
5.14
5.74
6.68
8.27
11.35
19.14
67.09
-45.69
-17.87

2.55
2.57
2.60
2.64
2.69
2.75
2.85
2.98
3.16
3.43
3.83
4.45
5.52
7.57
12.76
44.73
-30.46
-11.91

Machine 3 System Times

30
20
15
9.02
6.52
5.28
9.02
6.53
5.30
9.04
6.55
5.33
9.05
6.57
5.36
9.07
6.61
5.42
9.10
6.65
5.51
9.15
6.73
5.66
9.21
6.83
5.90
9.29
7.00
6.37
9.42
7.28
7.41
9.61
7.78
11.08
9.91
8.79 -38.03
10.40
11.59 -1.40
11.28
39.64
0.92
13.14
-5.56
1.67
19.00
0.17
1.97
#DIV/0!
1.65
2.08
-5.33
2.24
2.08
0.48
2.50
2.01
2.28
2.59
1.89
3.06
2.57
1.72
Total System Times

1.91
1.93
1.95
1.98
2.01
2.07
2.14
2.23
2.37
2.57
2.87
3.34
4.14
5.68
9.57
33.55
-22.85
-8.94

1.53
1.54
1.56
1.58
1.61
1.65
1.71
1.79
1.90
2.06
2.30
2.67
3.31
4.54
7.66
26.84
-18.28
-7.15

12
4.55
4.58
4.62
4.69
4.81
5.00
5.38
6.25
9.50
-20.60
-0.71
0.98
1.53
1.74
1.79
1.76
1.67
1.53
1.35
1.14
0.89

1.28
1.29
1.30
1.32
1.34
1.38
1.42
1.49
1.58
1.71
1.91
2.23
2.76
3.78
6.38
22.36
-15.23
-5.96

10
4.08
4.13
4.21
4.35
4.62
5.21
7.13
#DIV/0!
-1.06
0.82
1.36
1.55
1.59
1.55
1.45
1.31
1.13
0.92
0.67
0.38
0.07

20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

10

60
31.62
31.66
31.72
31.80
31.90
32.04
32.23
32.48
32.82
33.28
33.91
34.79
36.05
37.92
40.81
45.62
54.72
76.82
202.16
-4.58
-57.78

30
17.37
17.41
17.47
17.55
17.66
17.81
18.03
18.33
18.79
19.53
20.88
24.42
#DIV/0!
14.71
20.48
28.88
#DIV/0!
16.13
70.05
-40.84
-12.18

20
12.69
12.77
12.88
13.06
13.35
13.88
15.11
21.77
5.64
10.43
12.01
13.60
16.87
45.43
0.92
7.75
11.29
17.08
49.29
-25.84
-7.34

15
10.53
10.77
11.28
12.80
#DIV/0!
6.91
8.55
9.30
10.02
11.24
15.07
-33.88
2.96
5.56
6.76
7.83
9.44
13.29
37.15
-19.42
-5.74

12
10.14
15.55
4.76
6.96
7.59
8.01
8.51
9.45
12.75
-17.29
2.66
4.43
5.10
5.50
5.88
6.43
7.51
10.42
29.35
-16.05
-5.25

10
4.89
6.29
6.73
7.03
7.37
8.00
9.93
#DIV/0!
1.75
3.64
4.20
4.42
4.54
4.63
4.77
5.08
5.85
8.14
23.78
-14.19
-5.34

APPENDIX 3
WIP CALCULATION TO MAXIMIZE TOTAL REVENUE WITHIN CAPACITY
CONSTRAINTS

Total Revenue vs WIP for chosen Lot Size

Total Revenue

Lead Time

900000

1.000
0.900
0.800
0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000

800000
R
e
v
e
n
u
e

700000
600000
500000
400000
300000
200000
100000
0
1

9 11 13 15 17 19 21 23 25 27 29 31
WIP

I
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39

11

R
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55
55

T
0.364
0.382
0.400
0.418
0.436
0.455
0.473
0.491
0.509
0.527
0.545
0.564
0.582
0.600
0.618
0.636
0.655
0.673
0.691
0.709

Average
Revenue
30000
30000
30000
30000
30000
30000
30000
30000
29455
28364
27273
26182
25091
24000
22909
21818
20727
19636
18545
17455

Total
Revenue
600000
630000
660000
690000
720000
750000
780000
810000
824727.2727
822545.4545
818181.8182
811636.3636
802909.0909
792000
778909.0909
763636.3636
746181.8182
726545.4545
704727.2727
680727.2727

L
e
a
d
T
i
m
e

40
41
42
43
44
45
46
47
48
49
50

12

55
55
55
55
55
55
55
55
55
55
55

0.727
0.745
0.764
0.782
0.800
0.818
0.836
0.855
0.873
0.891
0.909

16364
15273
14182
13091
12000
10909
9818
8727
7636
6545
5455

654545.4545
626181.8182
595636.3636
562909.0909
528000
490909.0909
451636.3636
410181.8182
366545.4545
320727.2727
272727.2727