Having gone through the Littlefield assignments, I wanted to make the following general

observations:
- You could have computed EOQ and Reorder-Point and used it. Some of the teams did that,
but others did not. A few teams thought it was not possible to use the EOQ formula as the
problem did not explicitly specify an inventory holding cost, but you could have substituted
another figure for holding costs (which was given). For safety-stock, you would have to
compute demand variability from historical demand pattern.
- Many of the teams were not able to figure out the impact of lot-size on queue and throughput.
Smaller lot sizes do reduce WIP, but due to increased number of setups, there could be an
adverse effect on effective capacity of the resource.
The bottom line is: the theory learned in class can be (and should be) applied in practice, but
unlike text-book problems and exam questions, the relevant data may not be presented to you
on a platter.

Introduction
About Littlefield
Littlefield simulation was about running a real-time factory, making decisions on shop floor and
understanding and living with the consequences of the decisions made.
Process
The factory was working on Make to Order Model. The entire process takes place in batches.
When the order from the customer was received, raw material was moved from Inventory to
station one. Station one assembled the raw material into final product. The final product was then
moved to station two. Station two conducted tests on the final product and sent it out for delivery
if the product was properly calibrated or else the final product was directed to station three.
Station three tunes the product and directs it to station two, where the process is repeated and the
product is dispatched if calibrated correctly. There were queues in front of each station where the
WIP was kept if the machine was loaded.
Decision Variable
The decision variables were as follows:-

The reorder point and order quantity

The batch size
Number of machines to be maintained at each step
Which inventory/queue management to follow-LIFO, FIFO, Priority to certain steps, etc.

Which type of contracts to accept

o Contract 1 Lead time 7 14 days- Max Revenue 750$
o Contract 2 Lead time 1 2 Days Max Revenue 1000$
o Contract 3 Lead time 0.5 1 Days Max Revenue 1250$

Objective
The objective was to maximize the profitability of the company by changing decision variables.

Findings and Strategy

Inventory
There was no inventory holding cost but on the other hand, inventory ordering cost was $1000.
Hence ordering large quantity of inventory at lowering frequency will be cost beneficial. The
opportunity cost of ordering huge quantity of inventory was the interest that could have been
realised on the idle cash. Since the interest was very low, ordering large quantity of inventory
was more profitable. The strategy was to order high inventory till day 386. After day 386, the
order size would be reduce as when the factory closes at day 486, amount of cash parked in
inventory would be lower. Unfortunately, we failed to change the order quantity from 150000
(250*60) kits to 3900(65*60) Kits. On average, 3900 kits are consumed in four days that is the
lead time of arrival of new raw material.
Machine
It was noticed that the machine utilization at station one and station three was close to one. The
strategy was to add one more machine in both the station in order to bring the utilization below
one. Since the flow was happening from station three to station two, it made more sense to add
one more machine at station three. The rationale being adding one more machine at station one
will increase the queue at already burdened station three, while adding one more machine at
station three will help reduce the lead time as it will help reduce the throughput time of the
orders which are not calibrated properly.

Progress and the Mistakes

Day 111 - The first decision on the shop floor was to buy a machine at station three. The
rationale behind that is already explained above. It was known that the average demand for a
period of time would remain constant. Also, the procurement of raw material also took place at
constant rate. The only opportunity to increase the revenue was by changing the contract time.
Near day 111 A1 was experiencing lead time which varied from 0.5-2 days. If A1 shifted to
contract two, revenue of $1000 would be realised only if the lead time was below one day.
Delaying the delivery over one day will result in penalty in form of revenue cut. A1 calculated
that although the entire $1000 revenue was not realized, as long as A1 was able to generate

average revenue above $750, the company will be better off. Hence A1 started accepting contract
two from day 120, i.e. a commitment to deliver within one day.
Mistake 1: Reduction of Batch Size
A1 was not able to realize the full revenue under contract two. In order the get full revenue, A1
reduced the batch size to six (i.e. lot order of 10) [DAY 120].
The premise for the action was that the machine utilization will improve as number of batches
will increase and the batch size will reduce. Even if the order was not entirely executed, partial
order will be delivered on time; overall lead time should decrease. As a result full revenue on
partial order will be realized. Unfortunately, the effect observed after the lag time was different.
By reducing the batch size, the queue at station one started building up. Within 10 days of the
change the queue touched 5000 batches. Although the batch size was increased to 30 [Day 125]
and later 60 [Day 128] the queue was not disappearing. Due to this, the lead time increased
exponentially. Lead time reached all-time high of 12 days as an effect of mistake one.

Mistake 2: Buying new machine at expense of reduced WIP

In the midst of all the chaos, A1 decided that buying another machine at station one in the hope
that it will help improve the lead time and lower the queue of station one. But due to deficiency
of the cash, it was not possible to buy the machine. The condition for buying machine was that
the factory should have enough cash to place one order and surplus cash on that can be used to
buy machine. In order to buy machine at station one, A1 reduced the order quantity to be placed
at reorder point to mere two batches, i.e. 120 kits only. By doing so the condition for buying a
machine was met. Hence on Day 125, a machine was bought in station one with very little cash
(of 15000$) to spare. The premise was that with additional machine in station one, the lead time
will reduce and A1 can shift to better yielding contract. The revenue will increase and the
additional cash will be used to place order for the inventory. The problem with this strategy was
that the inventory was consumed faster than the incoming profit. In addition, the higher lead time
resulted in losses. Observing this, A1 panicked and it led to mistake three. A1 failed to account
for the lag time between the action and effect on the shop floor.
Mistake 3: Panicking and selling off a machine at station three.
Due to low availability of working capital and high consumption of inventory A1 was worried
that it will not be able to address the incoming order. There were still 20 days remaining to reach
the day 150 (the day at which banks will open there doors to the factory). A1 got worried for the
20 days as it had to make do with the current WIP and in panic, A1 sold off a machine from
station three in order to generate mere $10,000 in hope that this additional cash will help buy the
necessary inventory. On retrospection, A1 realised that it failed to take into account the WIP
inventory. Due to high queue at station one, the WIP would have been sufficient to last for 20
days, i.e. till the bank was accessible.
As soon as the bank became accessible [Day 155], a loan of $160,000 was taken. The loan was
taken in order to rebuy the machine at station three and also to meet the inventory needs (revive
the working capital). As the machine was ordered, the lead time started to decrease and by day
167, the lead time reduced to 0.46 days. The order type was shifted to contract three, which had
lead time of 0.5 days and maximum revenue of $1250. By day 192, A1 was debt free.
By day 210, A1 had enough cash to buy another machine. The past data [Day 180-210] showed
that full revenue of $1250 was not being realised. The decision to be made was - whether to buy
another machine or not. Analyses of historical data showed that on average, A1 was losing
$515.64 (Summation of {Average revenue lost per order * No. of Order per day} / Total no. of
days) due to overshooting lead time. If such trend was to continue, A1 team will be losing total
$142,315 ($515.64 * remaining no. of days), only if buying another machine can guarantee lead
time below 0.5 days. But since the utilization at station one and three was below one, buying
another machine to gain extra $40,000 (Gain cost of buying additional machine) did not make
sense. Also, there was no evidence that addition of another machine will reduce the lead time.

Hence the machine was not bought. Since the reorder cost was $1000, the order quantity was
increased to 250*60 = 150,000 kits, which was to be reduced to 65*60 = 3900 kits.
Unfortunately this exit strategy was not executed on day 386.

Learning and Takeaway

-

There is a lag between the decision taken and the effect to be followed
Working capital has a huge importance in an institution; lack of working capital can lead
to bankruptcy
One should always remain calm and patient while making decision
Second and third mistake could have been avoided by being calm and patient

Note: The
anomalies
observed
after day 120 in all the graphs are the result of the first mistake, which were further reinforced by
the subsequent mistakes.