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MBAC 507

Littlefield Report #1

Patrick Glicker
Haochen Xu
Yuanfeng Yu
Meaghan Hennessy
Our strategy for the simulation was to optimize the in-factory cycle and have the station 1
capacity meet the customer order rate.
By analyzing the first 50-day data, we found that station 1 was the bottleneck. The mean
utilization for station 1 was 51% but when the incoming orders reached 5 per day or more, the
utilization of station 1 became 100% and a queue formed. Moreover, the queue that formed had
reached 124, so orders began to be rejected. As a result, we decided to buy 1 machine in station
1.
Station 2 is the idlest process. The utilization never exceeded 40% and the majority of the time it
was around 15%. This signaled to us that we did not need to add any capacity to station 2.
Station 3s utilization averaged about 40% and the maximum capacity reached was 94%. Thus,
when we increase the capacity of station 1, we also had to consider the capacity of station 3.
Furthermore, the contract allowed us have a 3-day lead time so the station 3 capacity could be a
little less than the station 1 capacity to save interest and machine loss. Based on the information
above, the optimal in-factory cycle should be: 3,1,2 or 4,1,2 for the three stations respectively.
Going forward, we then tried to find the constant growing rate of the incoming orders. Since the
case told us the orders would grow in a constant rate from day 51 to day 150 and stay constant
from day 151 to day 180, we used simple regression to find the rate increase. We also noticed
that the order income is random. So we assumed it fit the normal distribution and used the double
standard deviation to get the order income range which so that 96% of incoming orders were in
that range. The result we found for the different time periods is shown in Appendix 1. Further,
we found at day 138 that the increase in order income seems growing faster than we estimated
and we used a cubic curve and recalculated the order rate (results shown in Appendix 2). Based
on our analysis we believed that the average order rate at day 150 would be between 12 to 13 and

96% of the daily order would not exceeded 17 orders. The profit per order was calculated and
compared with the machine cost to determine how many orders can cover the machine cost
(shown in Appendix 3).
Another decision that we made to optimize the in-factory cycle was to place priority in the queue
on parts going to step 4. This ultimately improved our lead times.
The case told us there would be a constant reduction in orders and the average order at day 218
would be 8. We believed from day 180 to day 218, the orders would decrease by 6 for 38 days
and would follow the trend and the last 50 days it would decrease to 0. So at day 218 we planned
on selling the machines we bought before.
However, the incoming orders surprised us and show very random order patterns. From day 147
to day 180 the order rate was higher than the estimated average 12 and after reanalyzing we got
an average order rate of 14.27 (shown in Appendix 4). Also, the maximum daily orders reached
22. At this point in the simulation it no longer made financial sense to buy more machines. In
the decline session from day 229 to day 249, the simulation displayed an increase trend, which
made us not able to meet our incoming orders. Since we had no control of the factory at this
time, we could not do anything to react to the change.
There are two mistakes or oversights that could have been avoided. First would be our
assumption that variability would fall within double standard deviation. It is clear that the
variability of the factory was higher. Second, given the unexpected increase in orders at the end,
it would have been better to keep all machines instead of selling them. Overall, our strategy was
the most successful compared to other groups until day 150 when the assumptions taken from the
case changed and the orders exceeded the prediction. Given the cost of a machine and the time
remaining in the simulation, we were unable to recover.

Appendix 1
Time period
Day 51-76
Day 1-76
Day1-117
Day 51-117
Day 1-138
Appendix 2
Time period
Day 1-138

Formula
Y=1.049+0.078X
Y=0.743+0.080X
Y=0.935+0.074X
Y=1.980+0.063X
Y=0.857+0.076X

Formula

Day 150
order income
12.749
12.743
12.035
11.358
12.257

Day 150
order income
Y=1.085+0.064x+9.35E- 12.089
5X2+1.14e-7X3

range
7.909, 17.589
7.903, 17.583
7.195, 16.875
6.518, 16.198
7.417, 17.097

range
7.263, 16.915

Model Summary and Parameter Estimates


Dependent Variable: order
Model Summary
Parameter Estimates
R
Equation
Square
F
df1 df2 Sig. Constant b1
b2
b3
Linear
.631 232.920
1 136 .000
.720 .079
Quadratic
.633 116.481
2 135 .000
1.100 .063
.000
Cubic
9.353E- 1.140E.633 77.079
3 134 .000
1.085 .064
5
7
a
Growth
.
.
.
.
.
.
.
The independent variable is day.
a. The dependent variable (order) contains non-positive values. The minimum value is 0.
Log transform cannot be applied. The Compound, Power, S, Growth, Exponential, and
Logistic models cannot be calculated for this variable.

Appendix 3
Revenue per order
Variable costs per order
Fixed costs (for ordering)
Profit
Machine of station 1
Number of order to cover
Machine of station 2
Number of order to cover
Machine of station 3
Number of order to cover
Appendix 4

$1000
60 * $10 = $600
$1000 / 120 = $8.33 per order
$391.66
$90,000 - $10,000 = $80,000
$80,000 / $391.66 = 204.26
$80,000 - $10,000 = $70,000
$70,000 / $391.66 = 178.72
$100,000 - $10,000 = $90,000
$90,000 / $391.66 = 229.79