University of the Philippines Diliman

Department of Industrial Engineering and Operations Research

IE 144 SYSTEMS SIMULATION CASE 1
EuroPhonix
Created by: PLJ
EuroPhonix, a mobile phones casings manufacturing company near Seville, Spain, has been suffering net
losses over the past three quarters (Q1-Q3). The company is in the brink of closing 3 of its production plants, all
situated near Greece. EuroPhonix currently has 10 production plants, each catering to a specific supply center.
Jacque Stonz, president of EuroPhonix, drinks the last bottle of French wine at his desk. His frustration
grows more and more severe. Staring at the companys latest financial statement, he needs to come-up with a
quick and effective solution to improve the companys performance for the coming fiscal quarter.
Jane, please schedule a meeting at 9A.M. tomorrow. I dont need to stress out to you the importance.....,
Stonz told his secretary.
Yes sir, Ill inform the board, Jane interrupted.
Thank you. And Jane, please tell them that if I dont see their faces tomorrow, then dont bother coming
to the office at all, Stonz hung-up in aggravation.
Over the past decade, EuroPhonix has been Europes leader in electronic gadgets casings, providing cheap
and reliable products for their customers. However, due to a mix of poor operations management and the
companys inability to predict product demands, the production has been operating at an undesirable efficiency
level. It also doesnt help that Europe is experiencing currency struggle, compromising EuroPhonixs bank
obligation. Their cheap products are not cheap anymore, almost at par with other Western providers. Investment
funds were more difficult to obtain than ever. Most banks issue 15% nominal interest rate for credit greater than
1Million Euros.
Present during the meeting were the Head of Purchasing, COO, CFO, some high-ranking employees, and
President Stonz.
President Stonz, we need to increase this quarters earnings or else were in big trouble, a stockholder
uttered.
It didnt occur to me Mr. Smith. Thanks for pointing that out! Please, someone tell me something I dont
already know, Stonz screamed in frustration.
Well, Sir, the purchasing departments first viability plan was to find suppliers that offer significantly
lower material costs, explained the purchasing head.
What part of the phrase economic recession did you not understand???
Can anyone please present something worth listening to?
Ms. Rays, do you have something to contribute? asked Stonz
Ms. Rays, a vicious but charming young lady, is the companys Chief Operations Officer. Stonz trusted
her more than anyone else in the company.
Actually, Sir, I have more than something. I think I came up with a solution to overcome our companys
financials struggle.
Go on.
Most of our problems come from our inability to satisfy customer demands, and this is a result of two
factors: i) We are operating at limited capacity and ii) The demand planning department missed its forecast
by at least 30% over the last three quarters. Based on the survey I oversaw with the marketing department,
we are only satisfying around 60% of the customer demand.

Ms. Ray, where can we find an investment bank that will lend us money for increasing our production
capacity?, asked Mr. Chow, the CFO of the company.
Well, the Spain Federal Reserve is willing to lend us money, said Ms. Ray.
How much are they willing to provide?
They can provide up to 500 Million Euros.
At what nominal rate?, one stockholder asked.
12% compounded quarterly, regardless of the amount. There is no restriction on payment though; we
just have to make sure that the debt is fully paid after 1 year.
Where did you find this anyway?, Stonz asked in amusement.
Its called seduction Jacque.
Stonz was speechless.
Show us your what youve got Rays, Stonz demanded.
Rays immediately showed all the relevant data (refer to the attached Excel file).

Sir with this strategy, I believe we can increase our profit this quarter by 60Milllion Euros., continued
Rays.
Thanks Ray, youre impressive as always., Stonz said in a flirting tone.
Sir, I know its none of my business but you can stop staring at my ass now, Rays demanded.
Im not..... Im just trying to figure which is more valuable, that or the 60Million youre gonna bring in
to the company, teased Stonz.
The conference room was filled with laughter.
Ray, Ill give you a week to prepare the report. Ill call a meeting with the companys owners then. Make
sure you came-up with the best strategy.
I will.

YOUR TASK
Prepare a MS PowerPoint presentation of your suggested strategy in increasing EuroPhonixs 4th quarter earnings
using Systems Simulation and applications of Methods Engineering and Engineering Economy concepts. The
presentation should not exceed a maximum of 20 slides. There is no suggested format in presenting your solution
(be creative and enticing as possible, assume that youre presenting to the EuroPhonix Board of Directors with
sufficient knowledge on simulation). Ensure that youre presentation contains the following (at the minimum):
Based on Past Data

Financial status of the company for the first 3 quarters (sales, resource cost/unit, etc.)
Average resource efficiency for the first 3 quarters
Average percentage of demand supplied for the first 3 quarters
Lost sales due to unmet demand for the first 3 quarters

Based on 4th Quarter Simulation

Forecasted/simulated product demand for the 4th quarter

Suggested number of machine and worker resource for 4th quarter production to satisfy the demand and
that yields the highest profit. This means that youll need to test different combinations of number of
resources. Note that each resources efficiency level is positively correlated to decrease in production cost
per unit, thus increase in profit.
Suggested number of overtime hours of machine and worker resource. Overtime in operations are done
on a need basis and may vary from day to day. Youll need to test different combinations of number of
overtime hours and the policies to which they are implemented.
Average resource efficiency for the 4th quarter ( using suggested resource configuration)
Average percentage of demand supplied for the 4th quarter ( using suggested resource configuration)
Simulated increase in total profit (and profit per unit)
Present Worth of Recommendation ( using suggested resource configuration)

Also, please submit the Excel file used for simulation. Make sure that the Excel file is presentable, clean, and
easy to understand. The simulation model in the Excel file should be repeatable i.e. create a button to simulate all
values (from the value of the daily demand to the Present Worth during the 4th Quarter).
Submit other files you see fit (such as result of statistical tests on Minitab etc.).

ASSUMPTIONS AND GUIDES

There are no inventory of mobile phone casings coming 4th quarter i.e. all mobile phone casings produced
for the 1st three quarters are supplied to meet the demand (In fact, there is a shortage in supply of mobile
phone casings for the 1st three quarters)
Forecast/simulate the demand for each day in the 4th quarter (Day 271 to Day 360) using demand from the
first 3 quarters for each supply center? Is there any increase/decrease in demand per unit of time? Is there
a significant difference in demand for each supply center? Does demand follow a specific trend?
Simulate the capacity for each day in the 4th quarter (Day 266 to Day 355).
o Number of machine and worker resource is constant for each day of the 4th quarter (depending on
the configuration youre simulating). That is, if you have 80 workers for process 1 in day 266, then
you have 80 workers for days 267 to 355.
o Number of hours for overtime operations cannot exceed 4 hours in a given day. Regular work
hours rate for labor and machine cost are applied to overtime hours.
o Assume that the production is already in steady state (daily capacity is equal to the capacity of the
bottleneck process).
o Note that despite the number of resource being constant from Day 266 to Day 355, the daily
capacity can still vary due to randomness in processing times.
o Production will start on Day 266 and will end on Day 355. At the end of each day, all units
produced are delivered to the supply centers. That is, production on Day 300 with a lead time of 3
Days will be available on the Supply Center on Day 304.
Simulate the number of met/unmet demand based on supplies for each day in the 4th quarter
o Including days for lead time, unused supplies from the previous days can be used to satisfy demand
on succeeding days. However, supplies from the succeeding days can only be used to satisfy unmet
demand from the previous days provided that the supplies is available within 4 days of the demand.
Suppose that 10,000 units is produced on Day 300. If the lead time for this batch (production day)
is 3 days, it will be available on the Supply Center on Day 304. Hence, this supply can be used to
satisfy unmet demands of Day 300, Day 301, Day 302, and Day 303. Excess demand can be sold
at a surplus.
Due to logistical constraints, each production center is dedicated to one supply center. Supply centers
cannot share mobile phone casings with other supply centers.
Repairman for each production center can service any down machine but can only service one machine at
a time. Repairman can also work overtime.
Simulate the total profit and the value of the Present Worth for the 4th quarter. How much should be
borrowed from the Federal Bank? Is Ms. Rays correct in asserting that the earnings of the company can
be improved by 60Million Euros? If not, by how much? If the strategy still does not improve the
companys performance, what other suggestions do you recommend?
When applicable use = 0.05 (for example, when conducting statistical test on the difference of demand
between two supply centers)
State other assumptions made, both realistic and unrealistic. Indicate how these assumptions can possibly
change your stated strategy, and dependently, the PW.