Managing Customer Responsiveness

at Littlefield Technologies
Background
Littlefield Technologies has developed a new model of DSS receiver. Customer demand
continues to be random; however, the expected daily demand will not change during the
product’s life span. Marketing knows demand will end abruptly on Day 486 and the factory
will terminate its operations (see detailed discussion later in this document). On that day,
all capacity and remaining inventory will become obsolete, and thus have no residual value.
Management would like to increase revenue and decrease costs. They believe a more
responsive factory will increase revenue and they understand well-balanced inventory
policies ought to minimize costs.
In appreciation of your prior recommendations and contributions, Littlefield has once again
retained your services on their 50th day of operations. Littlefield’s factory simulation will
run at the rate of two (2) simulated days per real hour for the next seven (7) real days.
On simulated Day 386, you will relinquish control of Littlefield’s factory and the
simulator will run its final 100 simulated days at an accelerated rate.

Assignment
In addition to the decisions made in your prior assignment, they would like your help with
managing cash flow, improving their inventory settings, and making yet further lead time
improvements.
They have purchased the recommended machinery and as much inventory as they could
with the operating cash allocated for this project. Management trusts you will be able to
effectively manage cash flows and eventually pursue shorter lead time contracts, which
they believe will maximize their final cash position on Day 486.
Orders for new raw materials are transmitted electronically to a reliable supplier, who
delivers the specified order quantity in exactly four days. All stations are composed of fully
automated machines, which perform a specific transformation. Additional machines may
be purchased during the assignment. You may sell excess capacity for $10,000 per
machine—provided at least one machine remains at each station.
New customer orders arrive randomly. Each order is composed of 60 receiver units. Upon
arrival, orders are matched with 60 raw kits of inventory to become a manufacturing lot. If
an order arrives and there is no inventory on hand, that order must wait in the queue of
customer orders needing raw kits. The factory can accommodate no more than 100 jobs in
process and/or waiting at any time. Arriving orders will be turned away when this limit is
reached.
Each order for 60 units may be divided into smaller manufacturing lots. Processing a
manufacturing lot entails both per lot and per unit process times at Station 1. The remaining
steps have no per lot times but management believes one of the two stations has a random
component that also affects process time. All manufacturing lots must be reassembled into
full 60 unit orders before leaving the factory.
Littlefield uses an automated Reorder Point/Order Quantity inventory replenishment
mechanism. Raw kits are purchased from a single supplier at a cost of $10 per kit ($600
per order) and a fixed ordering cost of $1000 per shipment. The supplier is very reliable,
delivering the exact order quantity precisely four days after receiving payment. Orders for
new inventory are only placed when the following three criteria are in place:
1) the inventory of raw kits is less than the material reorder point
2) there are no orders for raw kits currently outstanding
3) the factory has sufficient cash to purchase the specified order quantity.
You may change the inventory replenishment parameters. Reorder points and order
quantities are always entered in multiples of 60 raw kits, which match the order quantity
of 60 finished units. This quantity must always be a whole number greater than zero.
The current reorder point and reorder quantity may be changed by clicking the Edit Data
button found on the Materials Buffer’s pop-up window; you may change only one
parameter at a time. There are no holding costs associated with inventory—other than the
opportunity cost of its purchase price.
Marketing has determined that customers are willing to pay premium prices for faster lead
times and they have prepared three pricing contracts.

1) quoted lead time = 7 days; maximum lead time = 14 days; price = $750
2) quoted lead time = 1 day; maximum lead time = 2 days; price = $1000
3) quoted lead time = 0.5 day; maximum lead time = 1 day; price = $1300.
For any given contract, the revenue decreases linearly until it becomes zero at the
maximum permissible lead time. During the first 50 days, management has only accepted
jobs under Contract 1. They doubt you will ever be able to deliver 100% on time for the
most lucrative contract but believe it may be worth pursuing.
Contracts are assigned to each order upon arrival. The assigned contract for that order may
not be subsequently changed. A contract may be assigned to future orders by clicking the
Edit Data button on the Customer Order pop-up window and selecting from the resulting
menu.

To speed production you may split orders into smaller manufacturing lots. The factory
begins with a given lot size. Orders for 60 units may be split by factors of 1, 2, 3, 4, 5,
or 6 to permit manufacturing lots of 60, 30, 20, 15, 12, or 10 units respectively. You
know from prior experience, there are measurable setup times for each lot on Station 1
when raw materials are loaded onto the machine. You also know this is the only station
that has measurable setup times.

Any cash balance earns interest at the rate of 10% per annum. Once the market matures on
the morning of Day 150, a bank will offer financing at a 17% annual rate, compounded
daily. There is an additional 5% processing fee for each loan received. You may borrow
and repay loans by clicking the Cash button on the factory control bar and then choosing

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the appropriate button near the bottom of the resulting window.

Management expects that you will leave all factory parameters set to values that maximize
their final cash position on simulated Day 486. You may review the final status of your
factory and download historic data after the simulation ends but the factory will no longer
be active.

Deliverables
Your team will write a three-page executive summary (excluding Appendices) of the
actions taken during your tenure. This report will explain your reasoning for the decisions
you made and provide a retrospective assessment of their effectiveness. You must show
analysis to justify your conclusions and make recommendations that would improve
factory performance for future DSS receiver models.