Day 50 Decision:
The first thing we did before Day 50 was analyze the current lead times in the system to understand how efficiently it was running. We saw that when demand hit its peak figures over the first 50 days, the production process lead time took over 2 days. We took this to mean that we could not effectively meet the requirements for any contract other than the $750 per job contract one.
In trying to understand where the bottleneck in our process was, we looked at the utilization figures at each of the three stations (Exhibits 3,4, and 5). It was immediately clear that at various stages throughout the first 50 days of the simulation, utilization had hit 100% at both stations 1 and 3. While we immediately recognized that this would be an issue going forward, we also decided that due to the limited amount of capital available*…show more content…*

To determine how much capacity we needed to add to the production process, we took the standard deviation in demand over the first 50 days (Exhibit 1). This allowed us to do a Newsvendor style calculation, at a two sigma confidence level, where we determined our production process should be set up to be able to successfully cater to an average demand of at least 19.24 . Even though this is actually the maximum expected figure we expect for demand (within a 95% confidence level), we felt that the system should be able to run without ever hitting utilization, and therefore should be able to handle its max demand load as if it were an average amount. This meant that we needed to increase the capacity of our stations by at least 60%. To do so at Station 3 was required only adding another machine, therefore doubling capacity. Increasing capacity at Station 1, however, required adding two more machines to the already in place three to increase capacity by

To determine how much capacity we needed to add to the production process, we took the standard deviation in demand over the first 50 days (Exhibit 1). This allowed us to do a Newsvendor style calculation, at a two sigma confidence level, where we determined our production process should be set up to be able to successfully cater to an average demand of at least 19.24 . Even though this is actually the maximum expected figure we expect for demand (within a 95% confidence level), we felt that the system should be able to run without ever hitting utilization, and therefore should be able to handle its max demand load as if it were an average amount. This meant that we needed to increase the capacity of our stations by at least 60%. To do so at Station 3 was required only adding another machine, therefore doubling capacity. Increasing capacity at Station 1, however, required adding two more machines to the already in place three to increase capacity by

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