OPERATIONS MANAGEMENT CORE COURSE:

MANAGING BUSINESS PROCESSES

EMBA Dubai Autumn 2020

Littlefield Simulation Game: Detailed Assignment Description

Background

In early September, Littlefield Technologies (LT) opened its first and only factory to produce its newly
developed Digital Satellite System (DSS) receivers. LT mainly sells to retailers and small
manufacturers using the DSS’s in more complex products. LT charges a premium and competes by
promising to ship a receiver within 24 (simulated) hours of receiving the order, or the customer will
receive a rebate based on the delay.

The product life cycle of many high-tech electronic products is short, and the DSS receiver is no
exception. After 140 (simulated) days of operation, the plant will cease producing the DSS receiver,
retool the factory, and scrap any old tools. In the initial months, demand is expected to grow at a
roughly linear rate, stabilizing after about 2 months (60-70 simulated days). The release of the next
generation product (which will be manufactured in another facility using a different process) is
scheduled after exactly 116 days of production on the current version. At that point, it is expected that
demand on the current version will progressively collapse down to zero. Although orders arrive
randomly to LT, the marketing department expects that, on average, demand will follow the trends
outlined above.

Management’s main concern is managing the capacity of the factory in response to the complex
demand pattern predicted. Delays resulting from insufficient capacity would undermine LT’s promised
lead times and ultimately force LT to turn away orders. In addition, customers would pay dramatically
higher prices for the DSS receivers if they could be delivered within 6 (simulated) hours instead of 24
(simulated) hours. However, management is skeptical the 6 hour lead time could ever be consistently
achieved.

Assignment

It is now late September, and after 20 (simulated) days of operation LT is starting to fear that a few of
their receivers may be soon delivered after their due dates given the increase in demand. In
response, management has installed a high-powered operations team (you) to manage the factory.
For the next 120 simulated days (i.e. 5 real days) you must buy or sell machines to maximize the
factory’s overall cash position. Currently there is one board stuffing machine (purchase cost $90k per
machine), one tester ($80k), and one tuning machine ($100k). The resale value of all machines is
$10k. You may also change the way testing is scheduled. Currently, jobs at the tester are scheduled
First-In-First-Out (FIFO), but you can give priority status either to the initial tests or the slightly longer
final tests.

Orders for receivers arrive in batches of 60, and currently each order travels through the factory in
one lot of 60 kits. However, you may divide each order of 60 kits into 2 lots of 30 receivers, 3 lots of
20 receivers, 5 lots of 12 receivers, or 10 lots of 6 receivers. Each lot travels independently through
the factory, but the order is not shipped until all the lots that make up the order are completed. The
manufacturing step on each machine consists of a complex combination of automated and manual
tasks such as loading the group of boards and setting up fixtures. Your shop-floor supervisor has
recently completed the following processing time estimates:
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 Set-up time Operation time
Step Station (hours per lot) (hours per unit)

1 1 0 0.0425
2 2 0 0.03
3 3 1.5 0.00111
4 2 0 0.03

In addition, very little variability was observed around the processing times indicated above for
process steps 1, 2 and 4, so that they can be considered constant and deterministic for practical
purposes. Process step 3, which is performed on station 3 (tuning), is more labor-intensive, so that
the corresponding processing times exhibit more variability (coefficient of variation equal to 1).
You have two contracts to choose from:
• In the default contract, jobs completed within 24 (simulated) hours earn $1000. Late jobs incur
a revenue penalty of $500 per day (prorated by fractions of a day), so that jobs that take longer
than 3 (simulated) days to complete earn no revenue;
• In the fast lead time contract, jobs completed within 6 simulated hours earn $1500. Late jobs
incur a penalty of $250 per hour (prorated by fractions of an hour), so that jobs that take longer
than 12 simulated hours to complete earn no revenue.

You may change lot size or contracts by clicking on the “Customer Order Queue” icon and then
clicking on “edit data.” You can buy, sell, or change scheduling at machines by clicking on the icon
corresponding to the machine type.

You will also need to manage the raw materials procurement process, namely set the reorder point
and order quantity. Raw kits are purchased from a single supplier and cost $10 per kit ($600 per
order). There is also a fixed cost of $1000 per shipment of raw kits, independent of the shipment size,
and the supplier requires four days to ship any quantity of raw kits.

The balance on your bank account earns interest (compounded every simulated day) at a
compounded rate of 10% per year. After day 40 you may be able to obtain a bank loan under the
following conditions: initial cost of debt as a fraction of debt 5%; debt rate 20% per year.

When the assignment begins, there will already be 20 simulated days of history available for your
review. The simulator will run at a rate of 1 simulated day per (real) hour for the next 5 (real) days.
Thus, there will be a total of 140 simulated days of simulation corresponding to a product life cycle of
a bit less than 5 months (you only gain access to the simulation after 20 simulated days have elapsed
however).

After this simulation is over, you can check the status of your factory, but the factory will no longer be
running.

Please see pages 4-6 of the present document (Getting Started with Littlefield Technologies) for
additional instructions about the game.

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Preparation Questions

Note: These questions have been designed in part to help your team prepare for the simulation in
advance of playing the game.

1. Does your factory operate under make-to-stock or make-to-order? Is this the best strategy
given its market environment?

2. Compute a forecast of the total number of orders to be expected over the entire product
lifecycle, along with a detailed explanation and justification of how you calculated it. Based on
the historical data available, what is the relationship between the standard deviation of actual
daily demand and your demand forecast (i.e. the relationship between your forecast and the
variability of actual demand around that forecast)? Ignoring all costs except raw materials,
what is the gross profit potential over the entire lifecycle that is suggested by your demand
forecast, for the two contracts available?

3. Calculate the total set-up + processing time (in hours) for one lot summed over the 3 stations
for each possible lot size L (60, 30, 20, 12 and 6 kits per lot). How do you expect the lot size
and the number of machines at each station to impact the total order lead time? Provide a
qualitative explanation of your prediction.

4. Provide a formula for the capacity utilization of each station as a function of the average daily
demand rate D (in orders per day), the lot size L, the number of machines at that station N,
the setup time per lot S (in hours) and the operation time per unit U (in hours). Implement
your formula on Excel and provide the capacity utilization of each station for each possible lot
size when the demand is 35 orders per day and there are 7 machines at each station.

5. Describe a methodology to calculate an appropriate value for your inventory reorder point at
various stages of the product lifecycle. Make sure to include a detailed explanation of how to
calculate every quantity associated with your method during the game. If average demand
was flat at 35 orders per day throughout and the standard deviation of demand was
consistent with what you observed during the first 20 days of simulation, what would be the
reorder point value obtained from your method?

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 Getting Started with Littlefield Technologies

Introduction

Littlefield Technologies is an electronics job shop producing Digital Satellite System receivers.
Other manufacturers use these receivers as sub-assemblies of more complex products. There
are several competing companies. Littlefield’s differentiation strategy emphasizes guaranteed
lead times in return for premium prices. Their guarantee offers rebates to all customers whose
orders are delivered after the quoted lead time, and they deliver all orders that exceed the
maximum lead time for free.

Littlefield assembles its DSS receivers from kits of electronic components obtained from a reliable
supplier. The assembly process consists of four steps carried out at three stations called
the board stuffing, testing and tuning stations. A graphic representation of Littlefield’s process
appears in Figure 1. The first step consists of mounting and soldering electronic components onto
PC boards at the board stuffing station. The second step collects test data on each receiver that
is transmitted to tuning for the third step. The third step tunes the DSS units to receive satellite
signals at the tuning station. The final step returns boards to the testing station to for a final burn-
in and certification required by customers. There is no loss or rework at the Testing station.

Figure 1

All stations are composed of fully automated machines. You will have some cash on hand when
the assignment begins. This amount is depleted by both capacity and inventory purchases.
Revenues earned from filled orders increase the cash balance. Cash held earns interest,
compounded every simulated day, at an effective annual rate of 10%. There are no taxes,
salaries, nor fixed overhead costs.

Accessing your factory

You will access your factory from the entry webpage by entering your team name and password.
Your course administrator will provide the web address. Opening that link will give the login
window shown below.

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You must have both the Java plug-in and JavaScript enabled in your browser and should enable
pop ups for the Littlefield web site.

Using the simulator

This web-based simulator runs continuously. That is, if you view the site at 10am, and then view it
again at 11am on the same day, you will notice some simulated time has elapsed. You have no
control over the simulator clock. You may need to wait several simulated days to see the
effects of your actions. Constant monitoring is not necessary to success.

You may access your factory at any time of day. When the assignment ends, your factory will
quickly run the final simulated days and return to a suspended state. You may check the ending
status of your factory and download historic data after the simulation ends but your factory will no
longer be active.

Your factory’s web page shows a schematic diagram of the job shop floor illustrated in Figure 1.
Clicking icons in the schematic will reveal menus that control your factory and provide historic
data. For example, clicking on a station icon will reveal a menu that gives data about that station,
as well as buttons for additional menus that allow machine purchases or viewing a plot of the
station’s historic utilization rates. The specific information available at each icon is listed on the
last page of this document.

Your factory’s status is automatically updated upon login. To update the factory status at other
times click the update button on the bottom of the web page. In light of the slow speed of the
simulator, there will be no point to frequent updates.

You should download factory data sets for in-depth spreadsheet analysis. Below each plot you
will find a download button. Clicking this button will initiate a download of the tab-delimited text file
containing the plotted data. Save this file to your desktop or other useful location, and open the
file with a spreadsheet application like Excel.

Data points are recorded at the start of each day. In the Materials Buffer plot, fractional days are
also included to show the exact time new materials orders arrive and the exact time inventory
reaches zero.
You may notice a few days where zero jobs exit the factory. On such days, the daily average lead
time and daily average revenues are meaningless. A value of zero will appear in those plots on
those days.

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The winning team is the team with the highest cash balance at the end of the game. You
can compare the cash status of your team to other teams by clicking the “Overall Standing” button
below the factory schematic.

Icons on the Littlefield Technologies web page:

ICON INFORMATION AVAILABLE

• Number of new customer orders by day
Order Queue: • Average number of orders waiting for kits by day
• Current pricing contract for arriving orders
• Lot size
• Maximum work in process allowed in factory

• Kit inventory in the buffer at the end of each day, whenever

inventory hits zero, and whenever a new inventory shipment
Materials Buffer: arrives.
• Inventory costs
• Reorder Point and Order Quantity
• Time until the next shipment arrives
Station Queues:

• Average number of receivers in process that are waiting while

machines in the station are busy, by day

Stations:
• Number of machines at each station
• Scheduling Policy used (for tester only)
• Historical utilization of the station by day (i.e., the average
fraction of time a machine was busy at that station during that
day)

Completed Jobs:
• Numbers of orders completed by day (by pricing contract)
• Average order lead time by day (by pricing contract)
• Average revenue per order by day (by pricing contract)

Clicking on the above icons will enable changes to certain features of the factory. Your
assignment handout will explain which features you may change.

Sources and uses of cash may be obtained by clicking the cash button in the factory control bar.
Sources of cash are revenue, machine scrap value, and interest. Uses of cash are raw materials
inventory and capacity purchases. Clicking the history button will reveal team actions. Clicking
the update button will refresh your screen. Clicking the quit button will exit the factory. Clicking
the overall standing button will show your team’s relative rank.