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On the contract level, we wanted to examine by how much e can cut the lead time in order to improve the contact. About 1 0 “game days” into the simulation, we realized there’s no cost of stocking yet there’s a cost for the shipment. At that point we decide to increase the order size rapidly throughout the game as much as we can, till we have enough stock for the last 100. Since the interest on the money was so low (10% a year), we realized it won’t be a dramatic factor we need to take into consideration.
For example, if we had started the game with $1 M and kept it, we would have addition $100,000 (not a significant amount as we estimated our final revenue o be around 31. MM). Since most of the gave we gain interest on a revenue much lower than $1 M, all our decisions ignored the potential interest we could receive by saving cash by ordering less materials or not buying machines. We also saw no point in reducing the lot size to below 60 units. While steps 1, 2 and 4 were constant on manufacturing time per unit, step 2 saved manufacturing time per unit when dealing with bigger quantities.
Hence, we didn’t see any advantage in producing smaller lots. Machines Right off the bat we noticed Station 2 is the bottleneck as it functioned both s step 2 and step 4 of the process, and we only had 1 machine on this station. We recognized the utilization is constantly 1 and queue 2 is building up. Therefore we decided to purchase another machine to the station. We figured it will be worth additional 5250 per job as it allowed us to upgrade to contract 2.
On average there were 9 jobs a day, times 360 days (which is the time we got left to enjoy the extra cash on from the upgraded contract) – therefore, the purchase was worth 250X9X360 = $81 0,000 (way above the extra machine’s cost). Once we stabilized our materials orders (and manufactured constantly), we realized that utilization for station 2 was infect reduced to about 0. 6, but the queue on station 3 started to build up (while its utilization went up to a constant 1), risking our $1000 contract.
Therefore we decided to spend additional $1 00,000 dollars to reduce lead time which was getting longer. We also suspected it will allow us to shift to contract 1 ($1250) but it didn’t work out (see further explanation under the contacts section). Materials As the game started we wanted to reach a balance point in which our stock test from X to O every 4 days and then we receive the new order (ordered 4 days ago). The reason we thought about this strategy were previous assignment (such as the root beer chain) where stocking inventory cost money by itself (unlike in this case).
When the game started we picked as reordering point 2000, and ordered about 2500 units as we wanted to consume to inventory we already had in stock – it was too low and was chosen due to a calculation error and not realizing the stock will be consumed either way by the time we reorder (being set by the reorder point). Within 8 name days we saw out materials reach O way before the new order arrives, and infect the queue grew so much the entire new order was consumed immediately for jobs waited in the queue.
This caused our lead time to grow constantly and cut on our revenue per work. We raised the materials quantity to reach the real balance point of 4000 units. After a couple of days we finally realized there is no cost for stocking up inventory. From this point on, we decided to stock up as much as possible – with every cycle of ordering units, we were able to raise the order size as we slowly made more revenue, the ore units we ordered, the more revenue we had, the more units we were able to order for the next cycle.
Since the simulation ended with 1 00 days that ran automatically, we wanted to have enough stock to manufacture all jobs through these days, and defining the an order size of O units at the end of the period (since the factory will be closed and the materials will go to waste) – we calculated we’ll need to order materials for 900 jobs in advance for the last 100 days. Due to different setbacks, we had money for about 860 jobs. At this point we decided to order more than 860 worth of materials and overdraft stay with a negative cash balance for a few days).
We didn’t know it won’t allow us to make the order since we didn’t have enough cash. Since it was the last day of the game, and were unavailable for about 8 game days before day 266, we ended up with about 1 0 game days through which we had O materials and the queues grew to the point that even when we received the materials, the lead time caused us to lose significant revenue. This minor mistake, cost us about $500,000 at the end of the game. When we caught it, we adjusted the quantities, but it damaged our result dramatically. Contract We started with contract 3 ($750) as it was safe and the revenue stream was constant.
We didn’t want to switch contracts before we stabilized our lead time and our manufacturing chain. Once machine 2 was purchased, and the materials orders were high enough so we didn’t have any jobs waiting in the jobs’ queue (and the manufacturing was constant), we observed that out lead time is mostly under 1 day, and always under 2 days – therefore, with contract 2 ($1000) the revenue per job will be over the $750 ($750 is what paid for contract 2 if the job is delivered in 2 days). Once we stabilized manufacturing and purchased an extra machine for station 3 as well, the revenue became steady on $ 1000 per job (lead time less than 1 day).
We noticed that many time the average daily lead time is below 0. 5 a day, and we considered switching to contract 1 ($1250). Steps 1, 2 and 4 had a constant manufacturing time while step 2 was changing with each job – the total manufacturing time (averaging step 2) was 1 1. 45 hours (a bit less than 0. 5 day). It meant that if we had no queues whatsoever, our lead time would be beneath 0. Day most time (the change in step 2 would cause some jobs’ lead time to be higher, and we had no control on it). Nevertheless, delivering jobs in less than 0. Day, would still benefit more than $1000 per job (which is what we received for contract 2). We decided to try switch to contract 1, but after 8 game days we realized that on days we receive more than 9 jobs, the queues build up a bit, and the lead time increase to more than 0. 6 (sometimes even more than 1 day, which led to $0 per job) -? Since we got $1 250 per job on days with little jobs, and less than $1000 per job for days tit many jobs, it turned out that although most days had an average revenue per job higher than $1000, the few days with many jobs affected our average revenue per job significantly.
After 8 days the average revenue per job was $91 6, so we decided to switch back to contract 2. The sensitivity of contract 1 was the main problem (and not necessarily the short lead time). For contract 1, half a day was worth $1 250, but 1 day was already worth $0, while for contract 2 one day was worth $1 000, while only 5 days were worth $0. Hence, contract 1 was much more sensitive to any problem or the mallets delay in the process.