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Supply Chain and Operations Management educational simulation

INSTRUCTIONS Welcome to ChainSim training manual. ChainSim is an online-based educational simulation in which the student will manage the supply chain of a small manufacturing company. It can be played individually or in teams.

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Simulations can be used to provide a fertile learning environment for students. The use of simulated activities in education is becoming widely recognized as an important tool in universities. ChainSim simulation helps to understand principles, theories and practices of material requirements planning (MRP) and supply chain management, critically evaluate and link those to various aspects of performance (financial measures as well as physical inventory aspects). Simulation can be paused, whereas real life cannot. Pausing allows more time for students to assess what’s going on.

You are the manager of a small cell phone assembling company Nortek Manufacture Ltd. Your mission is to: 1) fulfill all client’s needs; 2) leave 50 units of each component in stock (optional); 3) leave 0 final products in storage (optional); 4) earn maximum profit (prices of the final products are fixed). The assignments require simple calculations which will help you understand the basic relationship in the supply chain.

Main view of simulation

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Suppliers Organising an effective purchasing performance. Choosing the right supplier involves much more than scanning a series of price lists. In real life your choice will depend on a wide range of factors such as value for money, quality, reliability and service. How you weigh up the importance of these different factors will be based on your business priorities and strategy. In the ChainSim simulation there are three suppliers who can supply different components in different volumes, prices and lead times (from level 3). You need to make orders from a proper supplier in a proper volume. You must keep the manufacturing process running by ensuring proper components in stock. From Level 5 you have to make more complex decisions regarding the supplier, you also need to choose the method of transport to ensure the right amount of components on the right time and with the right price. Conditions with the suppliers will change during the simulation, so you have to be ready to change your initial plan for sourcing. There will be changes in prices and delivery times.

At the same time the inventory value should be as low as possible to ensure that capital is not unnecessarily tied up in materials. For liquidity management available funds indicator can not drop under 0$ at any moment.

The change in available funds is based on how many products you will sell and for what price you will buy the components. There are some services that do not affect the amount of available funds, like cost of delay and cost of products transport. For those services you can pay later and invest available funds in buying more components for the factory. At the same time you have to consider how much is your profit by end of the production.

First you need to start the production and make some deliveries to the customers.

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Production – bill of materials A bill of materials or product structure (sometimes bill of material, BOM or associated list) is

a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of each needed to manufacture an end product. To assemble one product you need four different components: • One piece of component A

• Two pieces of component B

• Three pieces of component C

• Four pieces of component D

At the beginning of the production there are 200 pieces of each component in stock.

Finished goods from production will be placed in the products inventory (“products in storage”) from where you must deliver those products to the clients/customers.

Operations Management Sheet (level 7) The manufacturing consists of two production cells (for model Y and for model Z). Production decisions include: selecting which product the cells will be producing and in how many shifts the production will be running. In two shifts there will be produced 40 products per day. You can not make any changes on the day that is running already - to make changes in a day, you have to make them before you start the factory. An important part of the production process is to change the assembly phase production between model Y and model Z. Same machinery is used for both models, but only one can be produced at a time.

If you have 50 products in stock, from every additional product

you will be charged 0,5$ on behalf of storage service.

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Inventory management

Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use. It means that you need to avoid high raw material inventories during and at end of the production. At the same time you need to determine your reorder point (ROP), the level of inventory which triggers an action to replenish that particular inventory/component stock. Therefore you need to do Material requirements planning (MRP)

according to the number of final products you need to produce. Safety Stock - On level 3 you need to keep the minimum of 50 pieces of each component in a

safety stock (a level of extra stock that is maintained to mitigate risk of stockouts due to uncertainties in supply and demand). Safety stock is usually bigger if the demand is very unstable. You will see the requirements of the clients from the Client’s sheet. As you see your client’s needs are mostly fixed, but they can also change during the production. You can also use Safety Stock but it is not recommended and it will cause extra costs for your company. Cost for using safety stock space will cost you 0,2$ for each component that is under regular storage space. Overstock (Level 5) - carrying excess inventory (overstock) cause you costs. Your company has

extra storage space, where excess inventory is held until components on the floor clear out. More space used for storage means less floor space for selling. Plus, you have to pay for utilities and other costs related to the storage. From level 5 your regular storage space is 250 units for each component. It means that if you have more than 300 units of any component in stock you have to pay the cost of overstock. Cost for using extra storage space will cost you 0,2$ for each component that is over regular storage space. From the graphics you can see how you have led your production based on inventory level and available funds. From a teacher’s point of view it is simple to see how the students have kept the inventory and available funds level during the whole production period.

Graph of inventory levels based on each component. Red color indicates the Extra Storage and Safety Stock. space.

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Inventory Turnover Ratio - The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. Therefore it is important to keep your production inventory level reasonably low.

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory.

Lead time (Level 3) - More conventional definition of lead time is the time from the moment the customer places an order (the moment you learn of the requirement) to the moment it is ready for delivery.

Clients/Customers

There are three customers with different demands of final products and with different prices of transportation. Prices of products are also not the same, so you need to analyze to which customer you should deliver first in order to earn a proper amount of available funds. You can deliver products in different volumes and cost of transportation. With a bigger dispatch you will get a lower price for transportation. Prices of the products/mobiles are fixed and you can not change that. • Client 1 needs 50 units of mobiles

• Client 2 needs 100 units of mobiles

• Client 3 needs 150 units of mobiles

Delivery accuracy/reliability (Level 4) – the ability to deliver products on time. Delivery lead-time is the time period that starts from the customer’s order and ends when the customer has received the products. Delivery accuracy is the company’s ability to fulfil the agreed delivery lead-time.

Production speed is 20 products per day. For example if the lead time is marked as 2 days by the

supplier, it means that 40 products will be produced before the shipment will have arrived to the stocks.

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Every client has different delivery needs based on timing. For example Client 1 delivery need is 50 units in total and 20 of them in two days. Your mission is to deliver proper volume of products in proper time and to avoid Cost of delay. If some products will be delivered to the clients too late, you will be charged with a penalty of 200$ for each client. Delivery on time rate shows how many products of demand have been delivered on time. In Level 7 you have to take consider that you must deliver two different models for the customers at the right time. To make the delivery, you can choose air, road or sea transport. You have to make the delivery as cheap as possible and at the same time avoid any delays for the customers.

Results and teacher’s view By the end of the simulation when all clients are satisfied and you have made the last shipment to the customer the summary window will open. It will sum up all results with different indicators. Students have to fill in four fields: 1) „Student’s name“ - possible

to use also as a team name field 2) „Student’s address“ - for a

teacher to give online feedback about the results (optional) 3) „Receiver’s address“ - e-mail

of a teacher, who will collect and evaluate the results

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4) „Group name“ – based on the group name, the system will collect all players’ results and rank them according the biggest „Total profit“ indicator. It is important to follow that each student/player would enter the exact same name of the group in to the group column.

If teacher log in to the teacher’s view, where it is possible to get a clear overview of group member’s

results on every level and give feedback/marks according to the results. On the ranking list teacher will see when and who have finised the simulation. By pressing on the button ”Students Results” detailed simulations will emerge. During a classroom, the teacher can open the ranking list and organize a competition between the students or teams, demonstrating who will make the best results. Ranking tables and graphics will stay in the server and the teacher can open the results every time if needed. Students` success is measured by company profits as well as through a dynamic evaluation process in which students answer probing questions from the teacher and class members.

Ranking list of group „EALM“ played level 3 based on „Total profit“ indicators.

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Make education process more interesting!

Nortek Simulations OÜ Tel (+372) 632 10 99 Pärnu mnt 130, 12411 Tallinn, Estonia info@chainsim.com www.chainsim.com

Individual results sheet of each student or team.