Littlefield Technologies Study Manual

Preamble

The information in this document extracts and reorganizes the information given in the original publisher’s handout entitled “Littlefield_Game.pdf”.  Refer to it as needed.  You might find it useful when preparing for the game. Be sure to refer to the original documents as well! Littlefield_Game.pdf” is the original document.


Littlefield Technologies Study Manual

I.     The Game Scenario

A.   The Setting

1.    Framework

It is early January and it is the first day of operation for Littlefield Technologies (LT).  The factory only plans to run 360 days due to its product lifecycle. After 360 days LT will shut down.  Your team will take over management of LT’s capacity on day 30.  Prior to day 30, your team had no control over operations.  However you have detailed operating details as well as daily operating history available to begin planning your next 330 days.

2.    After Day 360

o      LT’s plant will stop producing DSS’s

o      LT will shut down the factory

o      LT will dispose of all inventory

o      Total value of inventory after day 360 = $0

o      LT will dispose of all capacity after day 360

o      Capacity consists of:       Stuffing machines,

                                 Testing machines, and

                                 Tuning machines

o      The salvage value of each of these machines after day 360 = $0

o      The salvage value of each of these machines before day 360 = $10,000

B.   Your Role in the LT factory

3.    Management’s Main Concerns – Managing Capacity

o      Over the 360 days as the demand pattern changes as shown in Figure 1 below

o      Insufficient capacity        è                       missed promised lead time delays   

                                è     Potential loss of income

o      Insufficient capacity        è                       Lost sales        

                                è     Definite loss of income

4.    Your Duties over the next 330 days

o      Purchase and sell machines

o      Set inventory order quantities (OQ) (the order size for replenishment)

o      Set inventory reorder points (ROP) (how low your inventory is before releasing the next order)

o      Quote lead times (select contracts to match operations in order to maximize revenues)

o      Set priority for the testing machine

You can give priority to the long initial tests, or the short final tests

C.   Your Simulation Environment

5.    Simulated Time and Relativity

o     330 simulated days      =        110 real minutes

o     3 simulated days    =   1 real minute

6.    The Competition

Your team’s competition consists of

o      Team DoNothing      è     makes no decisions at all during the game      

o      The other eight teams in your class.

The winner is the team with the most cash at the end of the game.

II.   The Game Scenario

A.    Initial Conditions

1.    Financial

o      Beginning cash  $500,000

o      Interest rate     10% per year, compounded daily

o      Debt                 available on day 150

o      Debt fixed cost 5%

o      Debt interest    20% per year

2.    Materials

Definition:  1 raw kit = 1 DSS before it is processed through the three machines

o      No. Kits On day 30  =      6,000 kits (a.k.a. raw kit)

o      On day 30, ROP =   4,500 kits

o      On day 30, OQ  =   6,000 kits

One Job is a customer order for 10 DSS’s.  For each single job that arrives, a single lot (of 10 raw kits) is removed from inventory to be processed into DSS’s.

3.    Tools

o      No. of Stuffers  =   1

o      No. of Testers   =   1

o      No. of Tuners    =   1

The jobs on the tester are scheduled on a first-in-first-out (FIFO) basis.

4.    Pricing Contract

The current pricing contract that is in effect is for $200 per order (that is $200 per 10 DSS’s) if the job is completed within 7 days.  After 14 days, the cost to the customer is $0.  If the job is completed at any time between 7 and 14 days, the cost to the customer is pro-rated.  That is the revenue for the job decreases linearly from $200 on day 7 to $0 on day 14.The Setting

B.    Product Characteristics

7.    Product Demand

o      Product            Digital Satellite System (DSS) receivers

o      Customers        Retailers, small manufacturers using DSS’s in their products

o      DSS Lifecycle     360 days

o     

DSS Demand     Shown in Figure 1 below

o      Begin Demand   DSS demand trend increase steadily from day 1 to day 60

o      Change 1          DSS demand trend will increase from day 60 to day 240

o      Change 2          DSS demand will level off from day 240 to day 300

o      Change 3          DSS demand will drop off at a steady rate on day 300

o      End demand      DSS demand will be near zero on day 360

o      Given               Demand history for the first 30 days

o      Unknown          Degree of increase in demand trend from day 60 to day 240

o      Unknown          Demand level from days 240 to day 300

8.    Jobs and Orders

The following terms appear in the readings.  The meaning of each term is spelled out next.

o      1 job                     =      1 Lots

o      1 lot                      =      10 raw kits

o      1 order                  =      10 DSS’s

o      Factory maximum    =      1,000 jobs

o      If the factory has 1,000 job in it, then job arrivals are turned away

One Job is a customer order for 10 DSS’s.  For each single job that arrives, a single lot of 10 raw kits is removed from inventory to be processed into DSS’s.  That is, the order is matched up with 10 raw kits from inventory and released into the factory.

If an order arrives and there are less than 10 raw kits in inventory, the order waits in the customer order queue pending delivery of raw kits from LT’s vendor.

III. Operations at Littlefield

A.    Buying and Selling

2.  Ordering kits

o      Fixed cost              =      $1,000 per order, each time an order is released

o      Variable cost          =      $10 per kit

o      Delivery Lead time  =      14 days

o      Ordering policy       =      multiples of 10 raw kits

All orders for raw kits are released automatically by the LT factory.  In order for a job to be released, three criteria must be met:

i.      The current inventory level must be lower than the current ROP

ii.     There are no outstanding orders. i.e. there is no order currently on its way to the to the factory.

iii.   The factory has enough cash to pay for the fixed cost plus the cost for each raw kit.

No order is placed if any of these three criteria are not met.

3.  Revenue per Order and Contracts

Customers are willing to pay more for their order if they can get their job completed faster.  As a result LF offers three different pricing contracts to customers charging more money for shorter lead times.

Definition:  The order lead time = time between the Job arrival time and the time it leaves the LT factory.

The price in the following contracts is for a completed job, or for 10 DSS’s.

 

Contract No.

Quoted (promised) Lead Time (Days)

Maximum Lead Time

(Days)

Maximum Order Revenue

($ per order)

1

7

14

$200

2

1

7

$225

3

0.25

1

$250

 

The contract that is in effect on day 30 is contract No. 1.  As soon as an order arrives at the factory it is assigned to the current contract, and that contract cannot be changed subsequently for that order. When you change contracts, the change only takes effect when the next job arrives.  Therefore the new contract does not apply to any orders that have arrived before you changed the contract even if those orders have not yet been processed.

B.    The Shop Floor

1.   Machines and DSS Assembly


LT receives raw material in the form of kits. LT then assembles and tests the DSS’s in a four step process on three machines (or tools) as shown in Figure 2 below.

o      Step 1 – Stuffing station: mount and solder the components onto PC Boards.

o      Step 2 – Testing station: brief testing.

o      Step 3 – Tuning station: tune key components.

o      Step 4 – Testing station: exhaustive final testing before delivery to the customer.

 

Step No.

Processing time (hours per lot)

Machine Type

Purchase Cost

Retirement Cost

1

3.4

Stuffer

$25,000

$10,000

2

0.8

Tester

$75,000

$10,000

3

0.4

Tuner

$75,000

$10,000

4

0.1

Tester

$75,000

$10,000

 

After day 360, the retirement cost is equal to $0.

Initially the jobs on the tester are scheduled on a first-in-first-out (FIFO) basis.  Once your team takes over, you will be able to change priority to the faster testing step or the slower testing step.


IV.  Your Cash Position at Littlefield

A.    Four ways to make money

Whenever you encounter a sentence beginning with “Recall”, bulleted information underneath that sentence is repeated from a previous section (which I reference).

Recall the initial cash position and other financial information (section II.A.1 p. 3):

o      Beginning cash  $500,000

o      Interest rate     10% per year, compounded daily

o      Debt                 available on day 150

o      Debt fixed cost 5%

o      Debt interest    20% per year

1.    The first way you make money by receiving $500,000 at the beginning of the game

2.    The second way to make money is to accrue interest

o      Interest rate     10% per year, compounded daily

Q-type-B: What is the daily compounding rate?

3.    The third way to make money is to sell machines at salvage cost

Recall (section III.B.3, p. 6):

o      The salvage value of each machine type after day 360 = $0

o      The salvage value of each machine type before day 360 = $10,000

4.    The fourth way to make money is to sell product

Recall that you can choose one of three contracts at any time (section III.A.2, p. 5).  Each contract has lead-time/price tradeoffs.

o      Contract 1        under 7days: $200/job      7-14 days: declines to $0/job

o      Contract 2        under 1days: $225/job      1-7 days: declines to $0/job

o      Contract 3        under 0.25 day: $250/job  0.25-1 day: declines to $0/job

The decline from $200 to $0 is linear from day 7 to day 14.  Interpretations for the other two contracts are the same.

Q-type-A: What is the determining factor for switching contracts?

B.    Three ways to spend money

1.    Purchase Inventory

Recall (section III.A.1, p. 5):

o      Fixed cost         =  $1,000 per order, each time an order is released

o      Variable cost     =   $10 per kit

Q-type-A: What is the holding cost of raw kits inventory?  Why did I not list it as a way to spend money?

2.    Purchase machines

Recall (section III.B.1, p. 6):

o      Stuffer              Purchase =  $25,000         (Salvage = $10,000)

o      Tester              Purchase =  $75,000         (Salvage = $10,000)

o      Tuner               Purchase =  $75,000         (Salvage = $10,000)

3.    Pay Debt

Recall (section II.A.1, p. 3):

o      Debt                 available on day 150

o      Debt fixed cost 5%

o      Debt interest    20% per year

V.    The Littlefield Shop Floor