The team selected design options and suppliers that balanced low production costs with flexibility. They split production between overseas and domestic suppliers. For forecasting, they averaged all forecasts rather than following the consensus. They set initial production slightly above forecasts and issued change orders when costs outweighed $2M adjustment fees. Investing in market research helped inform change orders. Overall, balancing costs and flexibility along with responsiveness to new data worked well.

1. Global Supply Chain
Simulation
TEAM 8 CASE STUDY
C580 – OPERATIONS MANAGEMENT
INDIANA UNIVERSITY
KELLEY SCHOOL OF BUSINESS

2. 1. How did you think about which options to choose (i.e., what
criteria did you use to select options)? What were the trade
offs you considered? What analyses did you conduct?
Options for Selection
 Our team selected design options that added the highest marginal profit possible
 We avoided options that had large variations in forecast (high standard deviation)
 We also selected multiple suppliers that gave us a blend of low cost and short lead time for flexibility to respond to changes in the
market. Splitting orders to give approximately half of our order quantity to an overseas supplier with a low cost of production and the other half
split between two domestic suppliers with no lead time
Trade-offs
 We had to decide on production cost versus lead time flexibility
 When faced with making change orders to respond to new market information we weighed the difference of carrying costs versus the $2 million
change order cost versus the lost revenue cost from stock outs
 Cost of Celldex show versus waiting to see what actual demand trends occurred
Analyses
 Design Options
 Reviewed forecaster’s inputs
 Reviewed range and standard deviation of estimates
 Tried a combination of inputs to select the complementary design options
 Additional analysis covered in questions on Forecast and Production rooms

3. 2. The Forecast Room: What did you use for your forecast?
What did you use for your forecast?
 After the first round we ignored the consensus and instead used the average of all of the forecasts
 It appeared after the second round after we used the average that the board approved of our decision. We continued to
receive positive feedback regarding our selection of using the average
 We used a single period inventory model

4. 3. The Production Room
How did you think about setting initial production levels?
 For all years except Year 1, we set our productions levels so that we were slightly over producing from our forecast
 We set our suppliers up so we could respond within the next month, as we were able to change production levels and mitigate risk
How did you decide whether to issue production change order? How did you think about the value of adjusting production
levels compared to the $2 million cost?
 We evaluated potential lost sales or over inventory costs versus the $2M cost of a change order
 We found that change orders made the most financial sense early in the production cycle
 In year 3, we wanted to reduce the quantity of produced Phone B. However, our suppliers did not allow for the reduction in quantity
that we wanted (due to the 60 percent rule)
Did you invest in the Celldex show? How did you think about the value of the information compared to the $2 million
cost?
 Yes, we invested in the Celldex show
 The information made us more confident in doing a change orders sooner when seeing a change in demand
 Even with the information, the actual demand did not align with the Celldex forecast exactly. However, it was better to work off the
Celldex forecast than estimates provided in the Design and Forecast room

5. 4. What worked and what didn't?
 Selecting options based on the unit cost and the marginal profit worked well for us. We didn’t add
unnecessary features
 We should not have followed the consensus the first round. Instead, we should have followed the
average when making our forecasts
 We did check to see if it appeared any of the individuals were more accurate than the average. For
two years, we went back to check to see if any particular individual was good at forecasting
 We should have figured out after the first two rounds that the sales of model A was more stable and
that we could have had more of those made overseas with lower cost and higher profit
 We learned that having two suppliers having a lead time of zero gave us very good flexibility in
responding to changes in the market. We also feel that we selected our three suppliers wisely in
order to realize cost savings and mitigate risk
 Investing in the Celldex show proved to be valuable when estimating production changes. We were
able to modify production to better meet actual demand early on in the production cycle
 We learned that following the advice of the board generally resulted in favorable outcomes for future
years

6. 5. What advice would you give to your colleagues who will be
doing this simulation in the spring quarter?
 We recommend splitting the simulation into two sessions, which each session focusing on two years
 When designing the phones, take a close look at profit and consistency of individual estimates
 We recommend ignoring the consensus forecast
 A significant portion of Model A should be made overseas
 Choose suppliers wisely and spread production across multiple suppliers to achieve cost savings and
flexibility in lead time for change orders
 Due to the limit of only allowing a 60 percent reduction in any order quantity in one change order, try
to ensure a large portion of Model B is made by one of the suppliers with zero lead time. This would
allow the ability to drop the amount more if needed
 Investing in the Celldex show proved to be a valuable investment. Follow the guidance of the Celldex
results early on in the production cycle
 Follow the guidance of the board

7. Appendix

8. Board Room Results – Year 1

9. Board Room Results – Year 2

10. Board Room Results – Year 3

11. Board Room Results – Year 4