Managing a Short Product Life Cycle at Littlefield Labs I
Background Littlefield Labs (LL) opened a new, highly automated lab to test blood samples. LL receives samples from local hospitals and clinics and processes those samples with disposable test kits. After 365 days of operation the lab will cease operations and shut down. Neither capacity nor inventory will have salvage value after the lab shuts down. Marketing has sketched the demand trend shown in Figure 1. According to this trend, the demand will increase linearly for 180 days, and then will stabilize at its peak until day 365. Although marketing is confident about the rough shape of demand, there is not enough marketing data to predict peak demand exactly. The peak demand will depend on how fast demand grows during first 180 days.
Management’s main concern is managing the capacity of the lab in response to the predicted demand pattern. Delays resulting from insufficient capacity could undermine LL’s promised lead times—ultimately forcing LL to turn away work.
Operations at Littlefield Labs LL uses a fresh test kit with each new blood sample. After matching samples with kits, orders travel through the reentrant four step process described in Getting Started. The purchase price of any machine is $30,000. The retirement price of any machine is $10,000. It takes time for new capacity to be ordered and installed. New machines become operational 5 days after they are paid for. Sold machines are retired as soon as they finish any work in process. Since these machines are of new type, management does not have any information on capacities of these machines or the time each machines takes on working on an order. Once the lab starts operation, they will have access to machine utilization data, which they hope to use for finding machine capacities. LL purchases raw material inventory with an automated policy of continuous review. Fresh test kits cost $200 each. A reliable supplier delivers the exact order quantity 24 hours after an inventory order is placed. Orders cost $500, plus the unit cost of any kits in that order. Management considers the physical cost of holding inventory to be negligible compared to the opportunity cost of interest that could have been earned by cash sunk into inventory. LL earns interest for cash held at a rate of 10% per year, compounded daily. You will not be able to change the inventory policy. Littlefield promises results within a specific time frame. LL earns $400 for all test results delivered in less than 24 hours. Rebates begin to kick in when an order’s actual lead time exceeds 24 hours. Revenues decrease linearly from $400, when the actual lead time is less than 24 hours, down to $0, if it takes longer than 7 days to deliver those test results. A test kit is consumed with every accepted order, so LL begins to lose money on any tests requiring more than 97 hours total waiting and process time. Assignment You begin managing the laboratory on Day 30. Historic data is available for review. For the next 335 simulated days you must buy or sell machines in order to maximize the lab’s overall cash position. There is one preparer, one tester, and one centrifuge already in the laboratory. Your simulator will run at a rate of 4 simulated days per real hour for a total playtime of 48 hours. Your team would be actively managing the laboratory for 4*48 =192 simulated days. After 222 simulated days (30 initial days + 192 days over which you manage the laboratory), the simulator will run on its own for another 143 days. Therefore, you must leave the laboratory in a configuration so that it can run on its own for last 143 simulated days without your supervision.
The only winning condition is having the most cash at game’s end.