Littlefield Technologies
Stanford University Graduate School of Business
rev. August 2004
Managing Customer Responsiveness at Littlefield Technologies
Background
Littlefield Technologies (LT) has developed another DSS product. The new product is manufactured using the same process as the product in the assignment “Capacity Management at Littlefield Technologies” — neither the process sequence nor the process time distributions at each tool have changed. On day 0, the factory began operations with three stuffers, one tester, and one tuner, and a raw materials inventory of 9600 kits. This left the factory with $1,000,000 in reserves. Customer demand continues to be random, but the long-run average demand will not change over the product’ 268-day lifetime. At the end s of this 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. Management would like to charge the higher prices that customers would pay for dramatically shorter lead times. However, historic lead times often extend into several days, so management has been unwilling to quote the shorter lead times.
Operations Policies at Littlefield
LT 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, a team could prevent orders from being placed at all by setting the order quantity so high that there is insufficient cash to place an order. Kits are purchased in multiples of 60 because orders arrive in batches of 60. A reliable supplier delivers exactly the order quantity of batches, four days after the order is placed and paid for. Management
rev. August 2004
Managing Customer Responsiveness at Littlefield Technologies
Background
Littlefield Technologies (LT) has developed another DSS product. The new product is manufactured using the same process as the product in the assignment “Capacity Management at Littlefield Technologies” — neither the process sequence nor the process time distributions at each tool have changed. On day 0, the factory began operations with three stuffers, one tester, and one tuner, and a raw materials inventory of 9600 kits. This left the factory with $1,000,000 in reserves. Customer demand continues to be random, but the long-run average demand will not change over the product’ 268-day lifetime. At the end s of this 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. Management would like to charge the higher prices that customers would pay for dramatically shorter lead times. However, historic lead times often extend into several days, so management has been unwilling to quote the shorter lead times.
Operations Policies at Littlefield
LT 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, a team could prevent orders from being placed at all by setting the order quantity so high that there is insufficient cash to place an order. Kits are purchased in multiples of 60 because orders arrive in batches of 60. A reliable supplier delivers exactly the order quantity of batches, four days after the order is placed and paid for. Management