Lead Time Management at Littlefield Technologies

Background

In early January, Littlefield opened a new factory to produce DSS receivers. Expert advisors predict demand for this new product will grow at a constant rate over the next four months before stabilizing. Daily customer demand has a random component, but expected daily demand should follow the predicted trend. Management knows the factory will no longer be required on Day $268$ when demand ceases abruptly. Any remaining machinery or inventory on hand after Day $268$ will become useless and thus have no residual value.

Management$$s main concern is purchasing capacity to serve the predicted demand pattern within contracted lead times. They would like to increase revenue while also minimizing costs. They trust a more responsive factory will increase revenue and they understand a well$-$balanced inventory policy should help to minimize costs.

Operations Policies at Littlefield

It is now late February, and LT has started to notice lead times are on the rise as demand grows. Delays, resulting from insufficient capacity or poor inventory management, could undermine LT$\text{'}$s contractual lead times and ultimately affect their reputation. Daily data from their first $50-$day$$s operations has been collected. It represents the period from early January to late February.

Management has just employed a high$-$powered operations team $($that$$s you!$)$ to optimize factory performance. There is only one metric for success: total cash in hand on Day $268.$ They trust you will be able to whip this factory into shape before it obsolesces. For the next $168$ simulated days you will buy or sell machines, determine scheduling priorities, and adjust the inventory policy to maximize their final cash position.

Littlefield$$s factory is currently equipped with one stuffing machine, one tester, and one tuning machine. Examination of their production process shows some variability in the time required to fulfill an order. Management has not done any analysis of step$-$by$-$step process times but they do record daily average utilization rates at each station. Average Utilization is the fraction of each of each day that machines are processing jobs averaged over the number of machines provided at a station.

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Additional machines may be purchased anytime during the assignment. Board stuffing machines cost $$90,000$ each, testing machines cost $$80,000$ each, and tuners cost $$100,000$ each. Selling machines, while the factory is still operational, will net a salvage value of $$10,000$provided at least one machine remains at each station.

You may change the way testing is scheduled at Station $2.$ Littlefield$$s operators have been following a first$-$in$-$first$-$out $($fifo$)$ policy, but they will give priority status to either the shorter initial tests $($pri$2)$ or the longer final tests $($pri$4).$ They just need to know which step is more important.

New customer orders arrive randomly throughout each day. Each order is for $60$ new DSS receivers. Upon arrival, an order is matched with $60$ kits to become a job. If an order arrives and there are no kits on hand, that order must wait in a queue of customer orders requiring raw materials inventory. The factory can accommodate no more than $100$ jobs in process and$/$or waiting. Arriving orders in excess of this limit will be turned away.

Littlefield uses an automated Reorder Point and Order Quantity mechanism to replenish inventory. Fresh kits are purchased from a single supplier at a cost of $$10$ per kit and a fixed order cost of $$1000$ per shipment. The supplier is very reliable, delivering the exact order quantity precisely four days after receiving payment. Orders for new inventory are placed only when the following three mutually dependant criteria are all met:

the inventory of kits is less than or equal to the materials Reorder Point,

there are no outstanding orders for kits in transit,

there is sufficient cash on$-$hand to purchase the specified order quan$$tity$.$

Inventory reorder points and reorder quantities may be changed by clicking the Edit Data button found on your Materials Buffer pop$-$up window; you may edit only one parameter at a time. There is no holding cost associated with inventory$$other than the opportunity cost of the purchase price.

Research has shown Littlefield$$s customers will pay premium prices for shorter lead times. Management has prepared three pricing contracts for you to choose from:

quoted lead time $=7$ days; maximum lead time $=14$ days; price $=$ $$750$

quoted lead time $=24$ hours; maximum lead time $=72$ hours; price $=$ $$1000$

quoted lead time $=12$ hours; maximum lead time $=24$ hours; price $=$ $$1250$

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. Contracts