MOS GAME

Summary:
The overall objective was to maximize the net operating contribution of the company. As the
price was not in our hand, our strategy was to minimize operating costs. As the major chunk
of costs are assigned to two parameters, one, varying production rate @ $2 per unit in
addition to change in shift charges of $ 7,000 from 1 shift to 2 shifts and $ 3,000 to back from
2 shifts to 1 shift and secondly the order backlog cost of $6 per unit of order backlog, in order
to optimize, initially we focused on these two major aspects. To minimize the variation in
production rate from one period to other, we decided to run at 2 shifts from the start of the
period and predict ranges of demand from the forecast and expected errors for next two
periods. This allowed us to plan for consistent production rate over a considerable period of
time. To avoid backlogs, we kept some buffer stock in order to meet the sudden unexpected
hike for a particular period. The hike was estimated on the basis of extreme deviation
provided for the period i.e. 33%. As for the second period we were to fulfill the backlog of 4
orders and also from previous periods order we were to produce 64 units. For the second
period the forecast was 82,000 and we calculated the range of the demand which can vary
between 55,000(-33%) and 109,000(+33%). With this demand around 20 to 30% we would
have to produce in the same period, so for the period 2 our production plan was decided to be
around 105,000 (68,000 previous orders + 25,000 expected order that needs to be fulfilled in
the same period + 10,000 inventory for the next period). Third period was expected to be the
peak period and demand was expected to be over our production capacity, so considerable
inventory needs to be kept in order to satisfy the orders, hence we chose to produce 105,000
unit keeping around 20,000 units of inventory for next period. But the demand was as low as
59,000 units but owing to previous period demand the overall requirement shoot up to
125,000 units which we were able to satisfy given we had inventory held with us. As all the
inventory was utilized and also the demand for third period was only 59,000 and we would
gain only 6,000 of additional sales with Type 1 advertising strategy, applying any
advertisement strategy would not yield higher profits, so we stick to no additional advertising
strategy. For 4th and 5th period demand was going to be bit low so we adjusted our capacity to
80,000 units for next two periods and risk to keep the inventory to meet any spike in demand.
However demand was quite stable and had little variation of the forecast, this lead to increase
in inventory of the level of 30,000 units for 2 consecutive periods. This however helped
further in 7th period where the demand spiked with 146,000 need to be served, and we were
left with only 5 backlog order despite sudden spike in the orders. This period also saw no
advertising campaign as we were not left with any capacity to supply the demand. Once the
two cycles (8 periods) of demand were available, it was bit easy to predict the demand for
next four periods, so taking into account we maintained our production rate at 90,000 units
with linear increase in inventory for two periods, as it was expected to get demand spike in
the third period. As expected the third period saw the demand of 105,000 units with around
140,000 need to be delivered in that very period, we fall short of 12,000 units owing to
maintain stable production schedule of 90,000 and were forced to produce to our full capacity
of 110,000 units.

160
140
120
100
80

Units (in '000)

60
Production
Rate

Demand

Inventory

40
20
0
-20

10

11

12

Period

Referring to the above graph, we maintained almost consistent production rate despite the
spiked variation in the demand and follow the cyclic inventory patterns in order to meet the
demand which had the cyclic variation with the cycle period of 4 periods.
Most of the time our strategy worked out well, and we were able to predict the demand for
future periods and maintained a constant production flow in most occasion. There were two
spikes in the 7th and 11th period which were expected looking at the forecast patterns but we
were bit conservative about it. And we have to face back orders in these periods because of
two reasons
a) To maintain the consistency in production rate
b) The spike was around 45% which was above our expectation of around 30-35%.
Hence through this exercise we were able to learn how the forecast are to be manipulated and
significance of variation in the demand. This is also helped us to learn the significance of
keeping limited inventory so as to cater to peak season or unexpected hike in demand. This
assignment also helped us how to plan for consistent production rate, to build up inventory
for peak season and then subsequent stock out once the lean period comes. In the graph also it
was clearly visible the cyclic nature of the demand and subsequent planning helped us to get
greater Net Operating Contribution.