Operations Questions

1. Training Expense

Our team closed its home area plant and moved its production to a plant in Sereno. However the training expenditure entered on the decision form is still going to the home area plant. We spent 155 in training. The income statement shows 155 in training expense in the home area with 163 for consolidated training and 203 for training in Sereno. The Sereno plant just opened a new line which apparently accounted for the training cost there.


The training expense entered on the decision form always is borne by the parent company for ongoing training everywhere.

Training for employees on new lines is in the area (and currency) of the manufacturing plant. Training for new salespeople is in the area (and currency) of the area where they are located.

The Ps 203,000 for new-line training in Sereno must translate to about $8,000 with an exchange rate around Ps 25 to $1.

2. New model

Our company will be producing a new model next quarter and we stocked out in several areas except one. Will we see a new model increase in sales (normally an increase) this quarter or next quarter? In the older BPG v3, you could get immediate benefits if you stock out in the previous quarter. The documentation implies that you do not regardless as to whether you stock-out or not. We are assuming not because of what is said on page 68 in the box.


The box on page 68 of the Player's Manual is correct. Even though you may substitute new model production for old model orders, the effect of the new model on demand will not be apparent until it officially goes on sale at the beginning of the next quarter.

3. Payment for plant construction

Do we pay for construction of the new plant in Sereno in pesos or dollars? With the exchange rate jumping so much, we would be able to build the plant in Sereno with much less dollars this quarter than last because of the jump in exchange rates. We are assuming that the exchange rates will help us.


Payment is made in pesos for a new plant in Sereno. If your Sereno subsidiary needs additional funds to make the payment, your parent company will purchase enough stock in the subsidiary to make up the shortage. The dollars will be converted to pesos at the exchange rate in effect at the time of the funds transfer.

4. Plant expansion

The book states on page 119 that when a company makes a plant in the home area, there is space for two new lines on each side of the new plant. Does that mean that if a company makes a new plant with a capacity of 6 lines that the maximum number of lines they can have after plant additions is 6 + 2 + 2 = 10 lines? We made a 8 line plant in Sereno from the get-go and will get to 12 lines soon, but my team is interested in the fate of the other teams that made 6 lines or less from the beginning in Sereno.


The maximum plant size in any area is 12 lines, no matter what the original size of the plant was. Expansion can be undertaken by building additions with two lines capacity--one addition being the maximum to start in any quarter. See the BPG Player's Manual, page 119, second paragraph under "Additions to Existing Plant."

5. Production variance

Last quarter, we scheduled overtime on 8 of our line in Sereno. We expected production to be around 499 units. Instead, we got only 432 units. Is this variance normal or within the limits of the program or does the Sereno workers not do overtime as efficiently as Merica?


Actual production may vary from the amount scheduled. In Merica plants the variation seldom exceeds five percent, but experience has shown that the variability in Sereno plants is greater, and is more likely to be less than scheduled than more. Your actual production of 13 percent less than scheduled is within the limits of variability. See the Player's Manual, page 96.

6. Deactivate lines

We would like to deactivate two lines at our home plant in M2 for the fourth quarter. As far as we understand, deactivation occurs immediately when it is sent in with a decision. Therefore, we did not deactivate the two lines on this decision. However, the handbook does not state this clearly - if we wait until the next decision (year 3, quarter 4) to choose to deactivate two lines, will they then be deactivated, and not a quarter later (year 4, quarter 1)? We have enough cash in our budget to allow for this deactivation even in this decision, should it take one quarter to take effect.


Deactivation takes effect immediately. If you don't need the lines for only a couple of quarters, you might find it less expensive to try "layoff" rather than deactivation.

7. Transferring employees from second to first shift

In a real production setting, an organization that is adding a new addition to a plant would realistically keep Second Shift personnel on the Second Shift lines until they could be transferred to the new lines on First Shift. In this simulation, it appears that we have to lay the Second Shift employees off and then hire them for the new First Shift lines by paying for their training. Is there any way to transfer the productive Second Shift employees to new First Shift lines or do we have to treat them like someone off of the street and effectively re-hire them?


It is not possible to transfer second-shift production employees to the first shift, though that may be a good idea for future versions of the simulation.

8. Inventory allocation

We currently do not have a Sales Office in Sereno and therefore ship all produced product to Merica for Sale. Considering this, we are unsure how the Sereno produced product is distributed in Merica. Specifically: Is the Sereno produced product equally distributed to all three Merica areas?


Is the Sereno produced product distributed only to those Merica areas that do not have an operating production facility?


Is the Sereno produced product distributed to all three areas within Merica, but only in a ratio that is the same as the ratio of Sales Office orders for each of the areas?


If there is a plant but no sales office in Sereno, and if there are unsold goods at the end of the quarter from that plant, they would show up as "inventory." Normally, goods held in inventory are not shipped to other market areas (see Player's Manual, page 18), but held for sale by the sales office in the same area. Where there is a plant, but no sales office, the goods from inventory are added to current production to establish the amount of goods "available for shipment" from Sereno (as outlined on pages 18-19).

If goods are available for shipment from more than one plant, sales office orders are filled first from non-home area plants beginning with Sereno, then from domestic non-home areas, and finally from the home area. They are not spread equally across other market areas without a plant. For example, if you had a Sereno plant, but none in areas 1 and 2, Sereno production would be used to fill the Area 1 sales office orders first. Then, if more goods from Sereno were still available, they would be shipped to Area 2. Any unfilled sales office orders in Area 2 would be shipped from the Area 3 plant. Goods would not be shipped to Area 3 unless there were not sufficient goods available from Area 3 production.

If you are producing goods in three domestic areas, the sales office orders in those areas will be filled first from the plants in those areas. If there is not sufficient production in an area to satisfy the sales office in the same area, goods will be shipped from other areas--first from non-home areas (starting with Sereno), then from the home area.

9. Produce in Sereno and ship to Merica

How can a company specify that it wants to produce in Sereno and ship the units produced back to Merica to take advantage of the low production costs in Sereno?


The allocation of production is explained on pages 17 to 19 of the Player's Manual. We have set up the rules so that it is easy to ship from Sereno as a low cost producer. When sales orders cannot be filled from a plant within a Merica area, if a plant is located in Sereno and the plant has produced more units of product than the sales office in Sereno has ordered, the excess Sereno produced units are the first shipped to sales offices in Merica where orders were not filled completely by production plants in their area. By careful management of production capacity and sales office orders, teams can take advantage of low cost production in Sereno.

As an aside you can raise some interesting questions about the impact that has upon US workers and what responsibility the firm has to its work force. Many interesting avenues of discussion can be followed from this.

10. Deactivate all lines

We may wish to deactivate all of the lines operating in our home area (as we move production operations into Sereno). However, we aren't positive that we wish to close the home plant. If we deactivate all lines, is there any way we can keep the plant (but not produce anything from it)? To save on production costs, we may just move all production operations into Sereno (and add second-shifts as demand requires).


Deactivating a line just provides for laying off the workers and securing the production line equipment for extended storage. It still sits in the plant. To close and sell the plant you also have to sell the equipment and the plant.

Second-shift operations are not available in Sereno.

11. New model introduction

My team came out with a new model last quarter. The following quarter the old model was not liquidated. Could you please explain the liquidation procedure and the timing of it when you come out with a new model.


In the quarter when a new model number is entered on the decision form, production of the old model ceases and only the new model is produced.

The market demand for that quarter (when the new model is being produced) is still for the old model, as the market introduction of the new model has not yet occurred.

Sales of the old model during that quarter will be from inventory on hand of the old model. If there are not sufficient goods in inventory, units of the new model may be substituted in any area where the inventory is exhausted. Because all production for the quarter is of the new model, all shipments to sales offices during that quarter will be of the new model.

At the beginning of the next quarter, when the new model officially goes on sale, any unsold units of the old model will be sold to a liquidation agent.

Please see the Player's Manual, page 68, for additional details.

12. Training expense

We are having trouble with our BPG training expense. According to our figures training expenses should be 281,000. This allows for 71,000 general training, 10,000 for sales people training and 200,000 for two second shift lines. According to the report, our training expenses are 504,000. We would appreciate if you could explain why this two figures differ.


It is kind of hard to tell what is happening without more information. It looks like the team may have entered the entire amount of training expense on the decision form instead of only the $71,000 general training. New employee training for sales and production are calculated automatically by the program (including increases due to changes in the CPI) and added to the amount entered for training continuing employees.

Allowing a little bit for inflation, the numbers would come out about right on this assumption. The figures given for training new employees is for Year 3, Quarter 1. As you go through the game, the amounts will increase according to changes in the CPI. s a result of the high amount of long-term