BOSTON

CARROLL SCHOOL OF MANAGEMENT

COLLEGE

OPERATIONS, INFORMATION, & STRATEGIC MANAGEMENT

Managing Customer Responsiveness

at Littlefield Technologies Spring 2006
Professor Fields version
Background
It is now nine months later, and Littlefield Technologies (LT) has developed another DSS
product. Coincidentally, this product also is expected to have a 268-day lifetime. Because your
team did so well with their previous product, Littlefield management has brought your highpowered operations team back to manage their operations for this new product.
The new DSS product is manufactured using the same process as the product in the assignment
Capacity Management at Littlefield Technologies neither the processing sequence nor the
processing time distributions at each station have changed. Managers tell you that the machines
at each station require the following amount of time on average to complete their task(s):
Step 1 at Station 1 = 5.9 hours per order
Step 2 at Station 2 = 0.9 hours per order; Step 4 at Station 2 = 1.1 hours per order; Total
processing time = 2 hours per order
Step 3 at Station 3 = 1.8 hours per order
Management tells you that they want you to assume that customer arrivals are Poisson
distributed, and processing times at each station are exponentially distributed. They do not know
exactly what the order arrival rate is, but they think you can estimate it by monitoring the factory.
Littlefield management is planning to operate the factory 24 hours per day.
Upon startup of production for the new product, the factory began operating with three stuffers,
one tester, and one tuner, and a raw materials inventory of 9600 kits. The factory currently has
approximately $1,000,000 in reserves. Based on initial management analyses, customer demand
for this new product is expected to be random, but the average demand will be fairly level over
the products 268-day lifetime. At the end of this products lifetime, demand will end abruptly
and factory operations will be terminated. At this point, all capacity and remaining inventory will
be useless, and thus have no value.

Littlefields management would like to be able to charge the higher prices that customers would
be willing to pay for dramatically shorter lead times. However, management has found that
This case note was written by Samuel C. Wood and Sunil Kumar, assistant professors at the Stanford University
Graduate School of Business. Minor edits were made in 2005-2006 by Gregory Heim, Assistant Professor, Boston
College, for use at Boston College.

historic lead times during the first 50 days of production often extend into several days, and so
they have been unwilling to quote the shorter lead times to customers.

Operations Policies at Littlefield Technologies

Littlefield Technologies uses a Reorder Point/Order Quantity raw material purchase policy. That
is, raw kits are purchased as soon as the following three criteria are all met: (1) the inventory of
raw kits is less than the reorder point, (2) there are no orders for raw kits currently outstanding,
and (3) the factory has sufficient cash to purchase the reorder quantity. No order is placed if any
of these three criteria are not met. So, for example, your team could prevent orders from being
placed at all by setting the reorder point to zero and setting the order quantity so high that there is
insufficient cash to place an order (e.g., 30000000).
Kits are purchased in multiples of 60 because orders arrive in batches of 60. As before, raw
material kits are purchased from a single supplier and cost $10 per kit ($600 per order). A
reliable supplier delivers exactly the order quantity of batches, four days after the order is placed
and paid for. Management considers physical costs of holding inventory negligible compared to
the financial costs. Again, as before, Littlefields cash balance (money not spent on machines or
inventory) earns interest (compounded every day) at the rate of 10% per year. This 10% also
represents an opportunity cost of holding inventory rather than holding cash. (Other details
concerning the purchasing policy can be found in the Littlefield Technologies: Overview note.)
The current reorder point and reorder quantity can be changed by clicking on the Edit Data
button within the popup window generated by clicking on the Materials Buffer icon.
For this new product, customers are willing to pay a premium for fast lead times. You now have
three pricing contracts from which to choose:

price = $750; quoted lead time = 7 days; maximum lead time = 14 days. (This is the
contract that the factory starts with.)
price = $1000; quoted lead time = 1 day; maximum lead time = 3 days.
price = $2000; quoted lead time = 0.5 days; maximum lead time = 1 day.

As before, when an orders lead time exceeds the lead time quoted to customers, then the
revenue for that order decreases linearly, from the prices above for the quoted lead time to $0 for
the maximum lead time. A pricing contract is assigned to an order as soon as the order arrives at
the factory, and that contract cannot be changed subsequently for that order. Pricing contracts for
future orders can be changed by clicking on the Edit Data button within the Customer Order
icons popup window.
You will also notice a few days where zero jobs are completed by the factory. On such days, the
daily average lead time and daily average revenues are meaningless, so a value of zero will
appear in the plots and downloaded data on those days.
Finally, as before, you are also allowed to buy and sell machines and to change the scheduling
rule at the tester (Station 2).

Assignment
The factory has been running for 50 simulated days. Littlefields management has recalled the
high-powered operations team (your team) to manage the capacity, scheduling, purchasing, lot
sizing, and contract quotations. Your teams objective is to maximize the cash generated by the
factory over the new products lifetime. Management is not providing any operating budget
beyond the cash generated by the factory itself. You will have control of the factory from day 50
to day 218. At 1 hour per simulated day, this translates to seven real days. At day 218, you lose
control of the factory, and the simulation will quickly run another 50 days of simulation. When
you lose control of the factory, management expects you to leave the factory parameters set to
maximize the factorys cash position when the factory shuts down on day 268. After the
simulation ends on day 268, you can check the status of your factory, but the factory will no
longer be running.
You will be allowed into the factory to analyze data starting Tuesday, March 28 at 5 p.m. The
Littlefield Technologies factory will be turned over to your capable hands at on Friday, March
31 at 12:00 noon. You can use your teams knowledge of inventory management, forecasting,
capacity management, and other concepts and tools from your textbook, to help LT managers
maximize their profit. Your access to the Littlefield factory will terminate one week later on
Friday, April 7 at 12:00 noon.

Case Questions to Answer in Your Deliverable

As part of their contract with you, Littlefield managers want your team to perform data analyses
supporting the actions you take in their factory. Managers want you to answer the following:
1. Using the data through Day 50, perform a queueing analysis of the Littlefield factory. Use this
queueing analysis to justify your choice of machines that you buy for the Littlefield system.
What is the expected waiting time in system (W s) of an order, given your choice of machines at
each station? In doing the analysis, assume the following:
Consider each Station separately from the others.
Calculate the order arrival rate at Station 1. Assume this rate is the order arrival rate for
the other stations.
Combine the processing times for the two processing steps performed at Station 2 into a
single processing time for each order.
2. What is your estimate of the economic order quantity (EOQ) and reorder point (ROP) for this
product? What are your assumptions that you used in calculating the EOQ and ROP? How
closely did you follow these values while you were in charge of the factory, and why?
3. What is your recommended tactic for dealing with the end-of-lifetime inventory restocking at
the end of this products lifecycle? How did you carry this out? What assumptions did you use?

Team Deliverable
Your team should turn in one summary of what actions you took during the week you had access
to the factory, why you took those actions, and in retrospect whether you think you did the right
thing. Show analysis to justify your conclusions.
The top-performing team from each class will be invited to present their inventory management
approach during a subsequent class session.

Report Guidelines
Your report should be single-spaced, and should be written as a memo to the managers of
Littlefield Technologies. Your summary should be about 2-3 pages in length. A structure for a
good report will include the following sections:

Introduction
Problem Statement
Recommendations/Actions Taken
o This section may include data analysis, equations, etc.
Resulting Outcomes
Evaluation of Outcomes
Appendix (optional, but highly recommended)*
o Up to 2 pages of data analysis, equations, etc.

*You are allowed to include an appendix (up to two additional pages) that presents any data
analysis you perform during your control of the factory.

Grading
Your teams grade will be based on the content of your report. The top performing team in each
class will receive 10 points extra credit added to their case score, which includes credit for their
class presentation. The second and third best performing teams in each class will receive 4 and 2
points extra credit added to their case score, respectively.
Grading on your written report will be at the instructors discretion. Note that insightful, in-depth
analyses of why your team did or did not do well can bring up your grade, regardless of your
actual simulation performance.

Helpful Resources
Graduate assistant Kevin Phillips will hold office hours in Fulton 413 on Tuesday, March 28
(9:00 a.m. until 3:00 p.m.), on Thursday, March 30 (9:00 a.m. until 12:00 noon), and on Friday,
March 31 (9:00 a.m. until 2:00 p.m.). Teams and/or team leaders will be able to ask Kevin
questions about using the Littlefield Technologies online website, how to log into it, how to
buy/sell machines, how to change inventory policies, how to download data to Excel, and any
other question related to the Littlefield Technologies website. Kevin will not answer any
questions about how to solve the case he doesnt know the answer.