Q Stanford University Graduate School of Business March 8, 2023 1 * Managing Customer Responsiveness at Littlefield Technologies Background In early January, Littlefield Technologies (LT) opened a factory to produce Digital Satellite System (DSS) receivers. The product lifetime of many high-tech electronic products is short, and this model is no exception. After 268 days of operation LT will: cease production, retool, and dispose of the obsolete inventory. Customer orders arrive randomly each day. Expected demand follows a trend. During the first four months demand will grow linearly. It will then stabilize for the remaining product life cycle. A new model will be released on Day 268 and demand for this old model will end abruptly. LT’s main concerns are capacity planning and inventory management for the lifetime of this new DSS model. Delays resulting from insufficient capacity or inventory could undermine lead times and might even force LT to turn away orders it cannot handle. Assignment It is now late February. LT is concerned that some receivers were delivered later than promised. In response, LT has recruited a skilled operations team (that’s you) to manage its factory. For the next 168 simulated days you must buy or sell machines to maximize LT’s final cash position. The factory begins with one board stuffing machine, one tester, and one tuning machine. Board Stuffing machines cost $90,000, testers cost $80,000, and tuning machines cost $100,000. You could also sell any machine at a retirement price of $10,000—provided at least one machine remains at each station. Increasing the number of machines does not affect daily overhead. You may also change the way testing is scheduled. Jobs at the tester are currently queueing First-In-First-Out (FIFO), but priority could be given to either the short initial tests or the longer final tests. Each customer order is for a case of 60 DSS receivers. Orders are matched with 60 kits inventory to become a manufacturing lot. If an order arrives and there are less than 60 kits remaining in the materials buffer, that order waits in a customer order queue pending more inventory. LT’s factory floor can handle 100 orders work in process. It must turn away all work arriving in excess of that limit. Orders cannot be split into smaller manufacturing lots and partial fulfilment is not allowed. * Based on a document written by Sunil Kumar and Samuel C. Wood, Stanford University Graduate School of Business. Copyright 2009. No part of this document may be reproduced without permission from Responsive Learning Technologies, Inc. info@responsive.net You can change LT’s raw materials replenishment policy. The factory began operations with 9600 kits. Kits are purchased in multiples of 60 because orders are always for cases of 60 DSS. They cost $10 per kit ($600 per order) with a fixed cost of $1000 per inventory shipment, independent of quantity. Inventory is automatically requisitioned whenever all three of the following criteria are met: (1) the raw kit inventory level is less than the reorder point, (2) there are no inventory orders in transit, and (3) LT has enough cash to purchase the order quantity. Materials arrive exactly 4 days later. An order quantity set to zero will prevent further inventory orders. The reorder point and reorder quantity can be changed by clicking Edit Data on the Materials Buffer icon. Physical costs of holding inventory are negligible, and can be ignored, but the financial cost of holding inventory should be considered. Marketing discovered that customers would pay higher prices for shorter lead time contracts. LT has been reluctant to quote shorter lead times because current averages have been running longer than they would like. They are wondering if you might be able to shorten lead times and increase marginal revenue. You have three contracts to choose from: • $750 with quoted lead time = 7 days, and maximum lead time = 14 days. (this is the initial contract). • $1000 with quoted lead time = 1 day, and maximum lead time = 3 days. • $1250 with quoted lead time = 12 hours, and maximum lead time = 24 hours. If an order’s lead time exceeds the quoted time, then the revenue for that order decreases linearly—falling from the quoted price to zero once the maximum lead time is surpassed. Lead time contracts are assigned upon arrival. They cannot be changed for orders already in process. Contracts for arriving orders can be offered by clicking Edit Data under the Customer Order icon. LT begins with $1,000,000. Cash held earns interest (compounded every simulated day) at an effective annual rate of 10%. 50 days historic data are available for review before the assignment begins. The simulation will run at the fixed rate of one simulated day per real hour over seven real days. Your assignment window closes at the dawning of Day 218. An additional 50 simulated days will be quickly run without further input. Results remain available for review after the simulation has ended. Deliverables You will turn in a concise summary of the decisions made during the week you had access to the factory, why you made them, and in retrospect whether you think it was your best course of action. Describe how concepts learned in class can be applied to better manage LTs factory, show analysis to justify conclusions. Managing Customer Responsiveness at Littlefield Technologies (rampmiya) 2 Recommended Step by Step Approach 1. Forecast your demand (this is your job arrival rate) for the remainder of the game. Demand will increase linearly from day 50 to day 120, then remain stable through day 268. 2. Make capacity decisions at each station: will you purchase additional machines? You are given utilization data for each station as well as arrival rate data. Process cycle times will be provided. ? = ? a. Process Cycle Time Step 1 = 2.8 hours per order (deterministic) b. Process Cycle Time Step 2 = 1.6 hours per order (deterministic) c. Process Cycle Time Step 3 = 2.9 hours per order (exponential) d. Process Cycle Time Step 4 = 2.6 hours per order (deterministic) 3. Make inventory decisions: what is your optimal Economic Order Quality and Reorder Point? Does Newsvendor apply here? a. Holding cost (i) is 10%. 4. Make contract decisions: there is no switching costs for contracts, but revenue changes only apply to contracts that come in after the decision to switch. Calculate your expected Process Lead Time (i.e., Flow time) to inform contract decisions. a. Remember, contract value decreases linearly for each day the product is late. 5. Be mindful of your units! Each order contains 60 kits (i.e., units). 6. The game will start on Sunday morning at 10:00 am eastern, and the first two days are critical to long-term success! 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