Lamson Corporation



In this game you will have the chance to try your skill at inventory and operations planning using the information similar in type to that available to Mr. Marino, the operations manager of Lamson Corporation, a large multi plant manufacturer of sewer tiles. Every two weeks in the summer sales period, Mr. Marino had to decide how many tiles of each type and size should be produced during the coming two weeks. In doing this planning, he took into account sales trends, the time of the year, the capacity of Lamson's tile making machinery, the stock of the various size tiles on hand, the cost of overtime production the cost of missed deliveries. In this game you will be able to make similar decisions, although the game will be a simplified version of the actual situation. The most important feature of this simplification is that you will be dealing with only two sizes of swear tile- the 18" diameter size and the 36" diameter size. Mr. Marino, in contrast, had to decide on production levels for 13 different sizes of tile and which plants would produce what mix.

Sales Patterns

Company sales, and industry sales in general are verymuch influenced by general economic and seasonal factors. Since weather affected tile laying conditions and the number of constructions starts, sales of sewer tiles exhibited in a yearly sales trend of the following general shape. Sales were low for 6 months, from October 1 to April 1, and rose rapidly in the spring to a summer peak and then tapered off again. About 1/3 of all annual sales were made in two middle months of the year while about 3/4 were made in the summer sales season. However, there was not necessarily a smooth rise and fall in the sales in any particular year. The curve shown is only the average of experiences of many years. In any given year, biweekly sales might vary +25% from levels they would assume if a smooth sales curve existed. Last year, the maximum number of 18" tiles sold in any two week period between April and October was 4,550. The similar figure for 36" tiles was 2,000. Major fluctuations in annual sales and mix levels were caused by economic conditions.



In the game you are about to play, Period 1 refers to the first two weeks in the April. Thus, company sales are just leaving the low part of the usual swing. The game culminates in period 12, the last two weeks in September, when sales are reentering the low winter period. Between periods 1 and 12, sales follow the general shape of the curve as shown in figure.

All sales made by Lamson are booked for delivery within the period being considered. That is, there is no advance ordering. Mr. Marino has no idea what the sales for any coming period will be other than from judgment of the sales level of prior periods and from consideration of the sales trend curve.

Production Constraints

The most popular sizes of concrete tile sold by Lamson were the 18" diameter and the 36" diameter sizes. Mr. Marino had found that together, these tiles accounted for a large part of tile sales; in fact, roughly, one half of each periods production was devoted to one or other of these sizes. The other half of each periods production was used to manufacture the other sizes of tile produced by Lamson. In order to simplify the game, it has been assumed that Mr. Marino will continue to schedule the production of the less popular eleven tile sizes and that he will use half the production time each period for these sizes. each participating group will be asked to schedule the number of 18" and 36" tiles to be produced during each period. Thus, each group will, in fact schedule the production of a summer season's supply of 18" and 36" diameter tiles.

There were nine possible volume combinations of 18" and 36" tiles. Four of these output values were based on the normal capacity output of the plants. the other five values represented the maximum output possible at Lamson, which require 50% overtime.

The nine production levels possible for 18" and 36" tiles in each tow-week are shown in Exhibit-1.

Exhibit-1

The Nine Possible Production Choices Open to Mr. Marino (each two week period).

Normal Capacity
50% Overtime
18" Tiles
36" Tiles
18" Tiles
36" Tiles
6000
0
9000
0
4000
600
7000
600
2000
1200
5000
1200
0
1800
3000
1800
1000
2400

Please notice the trade off involved in choosing a production level for a period. If the number of 18" tiles to be produced is increased, the number of 36" tiles that can be produced will necessarily decrease unless overtime is used.

Sub Contracting


There are a couple of small companies who also manufacture these tiles to order. However, Lamson has estimated that buying from these companies would cost Lamson more than to produce. The extra cost involved in buying 18” tiles is $5 for 18” tiles and $15 for 36” tiles. Further, these companies took about a fortnight to deliver an order. From Lamsons’s point of view, this means orders must be placed at least one period ( a fortnight ) in advance to meet the demands of a particular period. All these companies demand full advance payment along with the order.

COST INVOLVED

Inventory Costs
In deciding on production alternatives, Mr. Marino bore in mind several costs which he knew were fairly accurate. For instance, storage costs of an 18" tile for one period were an average of $2.00. This amount took into account interest on tied-up capital, insurance against breakage and direct handling expenses. The inventory carrying costs of each 36" tile were higher and averaged $6.00 per tile per period. Mr. Marino had found that, over the period of a season, inventory carrying charges could be reasonably calculated on the basis of inventory on hand at the end of each period.

Stockout Costs

Stockout costs also had to be considered by Mr. Marino. A stockout occurred whenever a sale in a particular period could not be filled because there were insufficient tiles of the required diameter on hand or in production during that period. For instance, if 100 tiles were on hand at the beginning of a period, 2000 tiles were produced during the period, and sales during the period totaled 2,200 then a stockout of 100 tiles would occur. When such a stockout occurred, there was a chance that a future customer of Lamson would be lost. Furthermore, Lamson lost the profit potential on the missed order. Mr. Marino had assessed the risks and costs involved and thought that a stockout cost Lamson $20 for each 18" tile and $60 for each 36" tile. These figures took into account the fact that the larger the number of tiles that could not be delivered, the more apt the customer was to take future business elsewhere. Stockouts could not be made up in subsequent periods. If a stockout occurred, the sale was lost forever to the firm.

Overtime Costs

If overtime was used in any period, a fixed charge of $20,000 was incurred, mainly to pay extra wages to the employees. the amount was fixed because the employees had been guaranteed a minimum amount each period overtime was used.

Sub Contracting Cost

If you decide to subcontract part of your production, extra cost of $5 per 18” tile and $15 per 36” tile will be incurred.

How To Play The Game

In the actual conduct of this game, teams will make the production decisions normally made by Mr. Marino regarding the 18" and 36" diameter tiles. Before each period, each team will be required to decide on the production level that will be used in the plant. This decision will be made by the team by what ever means it chooses. Thus a prediction from a plot of past period sales might be used by some teams, a pure guess by others. In making the decision, teams should consider both the possibilities of future sales and the inventories of tiles now on hand.

After each team has decided on the production level it desires for the coming period, the instructor will announce the actual sales levels for each period. Given this information, teams will then be able to calculate inventory on hand, and inventory stockout and overtime costs. These costs will be added to a total period cost which will then be added to a cumulative total of costs.

This objective of the game is to keep the total costs incurred over 12 periods to a minimum. This objective means that teams will have to decide whether it would be cheaper in the long run to incur overtime costs. It is impossible to avoid all three. At the end of the twelfth period the game will be stopped and final costs calculated. Your teams result will be compared to those of other teams. During subsequent discussions the merits of various inventory and production policies can be evaluated. teams will probably99 find it advantageous to split the work of making sales estimates, calculating costs, and keeping records among various members.

A few Operating Rules During The Game

1.The Only production combinations your team may choose are those given in your Exhibit-1.

2.If your team is unable to reach a decision during the time provided, it will automatically be decided that you produce 2,000 18" tiles and 1,200 36" tiles.

3.Normally, at the beginning of the game each team will have approximately 10 minutes to make a decision. This time will decrease as the game progresses.

Start Of The Game

The game proper starts in period 1. At the beginning of the game there are two thousand 18" tiles on hand and seven hundred 36" tiles on hand. It is now up to each team to peak the production level most appropriate for period 1 and thus start the playing of the game.

Adapted from the book, Shumacher & Landel,1986, Production and Operations Management, Science Research Associates.