INTRODUCTION

This simulation allows you to test your ability to make operations planning and control decisions without risk. You will enter the decisions onto the worksheet, see the results, analyze and reflect on these before making the next set of decisions.

SITUATION

You are responsible for the monthly operation of a production unit. Your responsibilities cover sales forecasting, budgeting, scheduling and purchasing. You should meet sales demand at least cost and least lost sales.

OPERATION

The production unit currently operates on a single shift basis but is capable of operating with two or three shifts. Each shift is capable of producing 2,000 units per month without overtime. With overtime, this capacity is 2,400 units per shift per month. Although you can increase or (once increased) reduce the number of shifts worked, you must give two months advanced warning of this change. (The two-month warning is to allow for hiring and severance procedures.)

Each month, depending on the current number of shifts and the availability of raw materials you can schedule a "target production" level.

Each month you must decide how much raw material to purchase for delivery at the end of the month. The delivery lead-time is one month, raw material purchases are not available for use until the following month. One unit of raw material is required for each unit of production.

Because the production cycle is short, any production in the month is available for sale immediately. If there are insufficient finished inventory, then sales will be lost.

SALES HISTORY

Over the last five years sales have grown as shown below and the Sales Department expects them to continue growing in the same pattern. However, you may have a different view.

The earliest year is Year 1 and the most recent is Year 5.

Sales History	Year 1	Year 2	Year 3	Year 4	Year 5
January	1080	970	1230	1120	1710
February	660	900	780	1110	1620
March	430	390	580	600	880
April	590	710	830	1090	960
May	840	720	940	1400	1220
June	720	1090	1110	1570	1530
July	1080	1290	1460	1480	2510
August	820	1130	1550	1700	2290
September	1560	1960	2150	2920	3350
October	2510	2340	2770	4020	4820
November	1670	1800	2340	2870	3960
December	1360	1390	1500	2050	2280

OPERATING COSTS

Labor Costs: These are: Indirect Labor at $10,000 per shift. Direct Labor at $2.00 per unit produced and an overtime premium of $6.00 for each unit produced in overtime.

Raw Materials: Raw Material purchase cost depends on the amount purchased. Below 2500 units the cost is $6.00 per unit. Above 6000 units the cost is $5.50 per unit. Between 2500 and 6000 units, the cost is $5.75 per unit.

Other Costs: Overheads are $5000 each month. Every time a shift is changed (increased or decreased) there is a charge of $10000. Inventory holding is charged at 3 percent of the value of average raw and finished goods inventories. (Raw Material inventories are valued at $5.00 per unit and Finished Goods inventories at $14.00 per unit).

PREVIOUS RESULTS

The decisions and results for the last three months follow.

Previous Results	October	November	December
Target Production	2400	2400	2400
Materials Purchases	6001	0	0
Shifts Worked	1	1	1
Unit Sales	4820	3960	2280
Actual Production	2346	2464	2519
Finished Inventory	1551	55	249
Materials Inventory	7496	5032	2513
Labor Costs	17200	17200	17200
Material Purchases	33006	0	0
Total Overheads	6571	6277	5639
Total Costs	56777	23477	22839
Average Costs	11.78	5.93	10.02

Since no raw materials were purchased in December, only 2513 units of raw inventory are available for January production. The November and December Shift Level decisions means that only single shift working is possible for January and February.

DECISIONS

TARGET PRODUCTION

MATERIAL PURCHASES

SHIFTS TO WORK

The production and purchase decisions are expressed in whole units. The shifts-to-work decision is the number of shifts to work in two months time and can be 1, 2 or 3. The target production decision is for the current month and the materials purchased will be delivered and charged to accounts at the end of the month. Your first decisions are for January and February.

OBJECTIVES

Meet sales demand and operate the factory at lowest unit cost and lowest lost sales.