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