Operations and Supply Management Simulation Anita Souza Davenport University MGMT757

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Running Head: Operation and Supply Chain
Operations and Supply Management Simulation
Anita Souza
Davenport University
MGMT757
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1- Summary of Simulation
In today’s global market, supply chain management is one of the main areas of study within
an organization, whether small or large. Supply chain management (SCM) is an essential part of
an organization that ensures success by increasing business efficiency and contributing to
strategic planning to provide products and goods to the consumer.
Supply chain managers are responsible to the entire process flow from raw materials to
finished goods. One of their responsibilities is to optimize operations to produce more efficient,
and create a sustainable competitive advantage over other business. Throughout clear
communication along the chain, managers are capable of providing a balance between demand
and supply. The implementation of standard process within the business is vital and allows each
department inside the organization to focus their efforts towards a common objective.
Internet supply chain simulation game is becoming more popular because is a teaching tool
that replicate real world experience (Hunt, 2008). The Global Supply Chain Management
Simulation V2 from Harvard Business Publishing is a hands-on learning experience that
facilitates and enhances supply chain management business education. The game provides a
realistic setting in which you experience concepts of supply management in a simple and direct
way. Participants, in a controlled environment, actively make decisions and observe their impact
in response to the simulation results.
The simulation illustrates two lines of cell phones (Model A and B) where you have to
allocate resources across a global supply chain. During the simulation, you are responsible to
manage product design, and forecast total market demand. Additionally, you have to create a
balanced supply chain between suppliers to ensure products are delivered on time with the
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agreed price, and in compliance with quality standards. The game has a length over a four-year
period, at the end of each year the executive board provides advice and feedback regarding sales
and production cycle. The simulation shows how the market reacts based on your decision for
product design options, and forecasts. The cell phone models success at the end of each year is
measure by gross margin in dollars, gross margin percentage and number of votes from the
executive board members.
This paper will discuss my decision making process throughout the game, the various results,
and general understanding of key supply chain management concepts. Secondly, I will address
the different criteria, and trade-offs considered during the simulation. Then, discuss the changes
needed for improvement, and explain what worked well and what didn’t work. Finally, analyze
the results and reflect on this learning experience.
2- Strategies & Major Decisions
One major decision I made was to only select product options that increased profit margin.
Another strategy was choosing features with low standard deviation, to avoid big forecast
oscillation. Creating a strategic plan based on profitability to maximize resources for each model
was a secure and conservative plan, keeping production expenses low by only adding two or one
features at a time. Also, in order to increase demand I wanted to maintain model A selling price
lower than $200 per unit.
Selecting three different suppliers over the four years gave enough flexibility with lead time
to react to demand changes in the market. The option of choosing a low-cost country sourcing
was used to place the majority of model A production. The remaining orders were split in half
between two national suppliers due to zero lead time. The decision of producing through
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multiple suppliers was weighted on production cost versus lead time. After the third year, I
realized that sales for model B was unstable compared to model A. Thus, the option of selecting
Celldex show over the four years proved to be worth to get a better forecast, especially because
overproducing or running out of stock resulted in inventory expenses and high markdown.
It was difficult to calculate inventory excess cost, markdown, and compute lost sales from
stock out. Hence, flexibility to change production as demand shifted was crucial to achieve better
profit in the end of each year. For demand forecasting after the first year, instead of only using
the consensus from the executive board members, it was more effective to calculate the average
between consensus and previous demand to enhance success.
The Celldex annual show was a research from expert opinion that helped adjust production
and stay profitable. The trade-off when issuing order changes was choosing between $2 million
dollars per year cost versus holding inventory or running out of stock. It was difficult to
accurately forecast the future in the first two years since model B seemed to have an unpredicted
demand pattern. The decision of joining the Celldex show was very positive over the four years.
3- Simulation Challenges, Changes & Outcomes
Year One
Design Room: One of the biggest challenges in the game is choosing different features based on
limited information. Initially, I had to rely on the board team member’s opinion and my own
instinct. While choosing between different product options I studied each of the board members
discussion. I also analyzed the profitability of each option, since unit cost and selling price
changed according to the selected design option. For the first year, the different options were
upgraded communication, exterior, stylish, and storage capacity. The upgraded communication
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had a high standard deviation for model B which implies in large variation in forecast. Exterior
option increased significantly the unit cost with no impact on the overall profit. Stylish had a
positive outlook on profit margin with low standard deviation. Storage capacity showed an
improvement in the product margin as well as a low variation in forecast based on low standard
deviation. I selected stylish and storage capacity for year one due to higher profit margin, and
low standard deviation.
The decision was also based on market research regarding cell phone trends. A couple years
ago, cell phones were bulky and mainly used for phone calls and text messages. Companies used
to focus on functionally instead of aesthetics. As time passed by and with mobile technology
advancement phones started to get more compact with multiple functionalities. Gradually,
consumers were purchasing based on shape and color. In today’s world phones represent a
fashion statement and attract both genders. Storage is another relevant feature when consumers
are making a purchase decision. Consumers want additional room for different apps, as well as
save pictures, videos, and play music on their phone.
Forecast room: In the forecast room for the first year, I used the expert’s estimation average and
my own instinct. Model A reaches a larger audience because of its low price and good quality. I
estimated 54k close to the 52k demanded for the year, and for model B 35K. However, Model B
for year one had an unexpected 20% increase and I run short in inventory.
Production room: Firstly, I made the decision of getting more information through the annual
Celldex show. The conference allowed to obtain updates on demand for both phone models and
helped me make more confident decision and the necessary changes when required. Although
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participating in the event called for $2 million dollars investment which could impact
profitability in the long run.
The game had four different suppliers. VeryClose was convenient and near to my facility
within a few minutes away. The other supplier PrettyClose was close to my state. The other two
suppliers were located overseas. The farther away the suppliers are, the lower the unit cost labor
was. Capacity was higher and setup cost lower when offshoring production. However, they also
had the longest lead time. Over the four years I choose to work consistently with three suppliers
to build a long term business relationship: FarAway, PrettyClose, and VeryClose. Flexibility
was my priority when making the decision because allowed for immediate changes in production
if necessary. I allocated most of production for model B between the two national suppliers,
taking advantage of their lead time. The overseas supplier was helpful for model A production,
considering the amount of units were being ordered, and the lower unit price along with large
capacity.
Once production began, it was noted that demand for Model B was higher than anticipated.
Then, the Celldex show announced that Model B was expected to sell 20% more than expected.
Reacting from this announcement, I made a change of order from PrettyClose supplier to
increase production, and avoid losing business by stocking out.
Boardroom: Gross margin for year one ended with $41,184,200 and gross margin percentage of
26.18%. Positive feedback from members came from Carla, and Ankit for understanding the
difference between model A and B when it comes to overseas and domestic resource allocation.
Areas of improvement were regarding of inventory excess and markdown costs.
Year 2
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Design room: In result of a successful past year, I decided to use the same features since we had
a positive gross profit margin. Using the same attributes to continue to differentiate our business
from competitors, and validate sales strategy. Again, looking into high profit features and
avoiding high standard deviation were the main criteria used to choose between different phone
features. From a marketing standpoint, I taught about the importance of extended battery to avoid
the obligation of charging the phone overnight. However, the feature added $20 in unit cost and
the selling price wasn’t satisfactory to increase revenue. Durability in the other hand can be
achieved by protecting the phone with cell phone covers. The business wants to build a good
product reputation, but also a sustainable recurring consumption. Consequently, durability and
extended battery were not chosen for year two.
Forecast room: Since I had a sales history it was simpler to calculate the forecast, but not
necessarily accurate. I used the demand for Model A based on year 1 and multiplied that by 1.10
(Year 1, Model A Sales = 54 *1.10 = 59). The logic behind a 10% increase was due to the cost
benefit from model A compared to model B. Even though model B in the first year was a hit and
sold 20% more than expected there are some challenges when marketing to a high-end
consumer. Sometimes these consumers require greater innovation associated with a higher price
point. Model B calculation was based on the demand from the previous year. Therefore, Year 1,
Model B Sales = 35/1.25 =28. The sales strategy for year two was not hinge on new technology
and trends, but instead the strategy was to remain competitive and relevant in the market to
increase gross profit margin.
Production room: The production in the second year was lower by only 2k so it was necessary
to work with the same suppliers. I went again with FarAway, PrettyClose, and VeryClose as in
previous year. Keep in mind that in the real world is important to establish a strong mutually
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beneficial long term relationship, so we can work as a team and they can see us as an asset to
their business. Strategic relationship management is a key step in enhancing performance across
supply chain (Durrani, 2015). There are multiple benefits of working with a long-term supplier,
for example, companies can avoid initial set-up costs and have more flexibility when negotiating
costs. The longer a company provides a service to another, the better they understand each
other’s customer market, and business practices. Also, communication is more efficient when
suppliers understand the buyers need.
I invested in the Celldex show again because the information provided gave me
confidence in doing change order sooner when seeing a shift in demand. I tried to be mindful of
costs of carrying inventory, especially year two where I overestimated sales for model A. Once
production began, the forecast based on a simple math from previous year were satisfactory to
have a strong gross margin profit. However, I still issued a production change order for both
models because I was out of cell phones in the middle of sales season. The change orders made
the most sense versus potential lost in sales.
Boardroom: The overall goal of increasing gross percentage margin was accomplished. The
year ended with 29.55% of gross margin and $46,425,980 of gross revenue. Positive feedback
from board members included the same voters Carla and Ankit. Their votes were because I had
a good understanding of forecasting based on historical. Areas for improvement included
overseas lead time when manufacturing more than half of production.
Year 3
Design room: This year’s options included Extended Battery, Durability, GPS Anti-Theft
Tracking and Audio Quality. Again, I only selected the option that added high profit margin with
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a low standard deviation. Audio quality was the only option with a low cost that increased $5 per
unit of profitability for both models. I feel customers would not be willing to pay for the other
options. In addition, consumers could download the GPS anti-theft for free. I know for many
consumers cell phone battery is an important factor. However, for this year I did not perceived
value was worth the additional cost of the item.
The cell phone industry evolves as technology advances; this includes more research
development to offer faster processors, better displays, and high resolution camera in exchange
for a fair price. A Park Associates survey shows that 68% of US cell phone owners stream music
on a daily basis (Spencer, 2016). Therefore, I felt the mix of audio quality, low price, and high
profit margin would be a fantastic phone based on its performance.
Forecast room: The forecast in the third year was overly conservative. In a real business world,
forecasts are usually based on historical data, test markets, simulation, probabilities and
executive judgment. In this game, to make more accurate forecast I combined historical data, and
expert’s advices. For instance, I was forecasting for a cell phone with a new feature (audio
quality) compared to the two previous year which had the same features (stylish and storage
capacity). Because it was a new cell phone feature I didn’t have historical data. However, I used
the historical review accumulated from the previous year for a similar product which gave me
enough information to forecast.
In the previous year, model B only sold 90% of its sales forecast, and demand for model A was
higher than estimated. Therefore, based on the consensus data for each model the forecast for the
third year followed the predicting below:
Model A – Consensus 66 *1.15 = 69k

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Model B – Consensus 32/1.4 =23k
The price unit for Model B ($255) was $40 more versus Model A ($215). In the previous
year the difference from these models was only $20. So, since consumers are not enthusiastic
about paying a premium price for certain goods I predicted an increase in demand for model A
and a decrease in demand for Model B.
Production room: The production in the third year was higher than the previous year so I had to
allocate resources wisely. I went again with FarAway, PrettyClose, and VeryClose like in the
previous years. Since FarWay have 3 months lead time compared to 4 months lead time from
FarFarAway it made sense to order the majority of production through FarWay. In fact, the
greater the lead time the higher is the risk of holding inventory, because it’s likely the product
you needed when you ordered is no longer the demand you need when it arrives. Thus, working
with local suppliers was critical for immediate changes in production. Moreover, 70% of
American consumers value U.S made products (Aeppel, 2017).
Over the third year I lost revenue from both models because I did not meet the demand. I
was short by an average of 3k per month for model A, and stock out the first three months for
model B. Although, model B had a 37% decrease in sales from May to December. This rapidly
decrease in sales from model B increased our inventory expenses and I couldn’t avoid the end of
year high markdown. Figure 1 show the yearly production planning.
It did not make sense to issue a change order because demand only shifted towards the
end of sales season. I evaluated the potential of holding inventory costs, versus the $2 million
cost for a change order, and it only made sense to issue a change order early in the production
cycle. Therefore, I had to absorb costs associated with additional inventory.

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Boardroom: Gross margin for year three ended with $35,563,100, the lowest yet, and gross
margin percentage of 23.09%. Even though it was a lower year than anticipated, I received
positive feedback from three board members compared to two votes in the previous years.
Positive feedbacks were associated to comprehending the difference between model A and B.
Areas for improvement were related to the excess of inventory at the end of year.
Year 4
Design room: For year four I choose the options of Audio Quality and GPS Anti-Theft
Tracking. If I had to do it over again, I would have picked camera quality instead of GPS Anti-
Theft. Even though camera quality had a high impact per unit cost but still could turn into profit.
In this year, like the previous year I continued to make my decision based on high profit, low
standard deviation options. Unfortunately, I did not give much attention to new trends, and
market research. In the real world, I am aware that cell phones are the future of mobile
photograph but I decided to play safe, and follow logical progression. Unfortunate, I don’t feel I
made the best options for features during year four. Whereas, losing your phone can be the most
frightening experiences in the modern age, there are apps in place that helps in this situation.
However, I thought about producing a phone with a system in place to protect contact, personal,
and financial data; additionally to audio quality to take consumers audio experience up a notch.
Forecast room: As a starting point, I analyzed the previous sales according to our product t line
additionally to annual trend. My strategy was to improve sales during year four based on patterns
from the previous years. During year four, I disregarded the consensus opinion and instead used
the average of all forecasts. As a result, I conservative estimated model B and overestimated
model A based on the added features along with average forecast.

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Production room: The production in the fourth year was smaller than the previous year, yet I
still worked with three suppliers to continue to build a long-term supplier relationship. I tried to
play the game alike the real world, and that explains the reason for my strategy. Having strategic
partners in place, means determine the most efficient way to maximize profitability. Again, I
would like to emphasize the importance of change in production, and having two suppliers with
no lead time for flexibility in responding changes in the market. Selecting three suppliers
throughout the four years made me feel secure about cost savings and in ease with risks.
Over the four years I tried to be mindful of sales change. After the second year I realized
that sales for model B were more unstable versus sales from model A. So I outsourced most of
model A production overseas in order to escalate profitability since it was a lower unit cost. The
Celldex show proved to be valued when issuing orders early in the production cycle and I
invested throughout the four years. Model B had a 20% increase in demand and I was short in
inventory starting in May. Model A sold well within the first 3 months, then demand shifted and
I ended up having excess inventory. The cost of holding a high level of inventory can be a
bottleneck because it takes up business funds for other areas such as marketing or product
development. Additionally, storing excess inventory can potentially compromise the product
quality. I issue a change of order to increase production for model B by one of the suppliers with
zero lead time. Demand for model A was lower than expected so I had a big markdown in the
end of the year for this model.
Boardroom: Gross margin for year four ended with $40,569,737,940 and the lowest gross
margin percentage yet of 22.75%. I observed that positive feedbacks from the board members are
generally when following the consensus, and their discussion advice for product options. Positive
feedback for the fourth year came from Adele, Matheo, and Ankit about understanding stock out
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costs compared to markdown costs. It was important to learn that is more profitable to plan for a
small surplus over expected demand.
4- Operational Conditions & Outcomes
In today’s global economy business acknowledge the importance of a strategic supply
chain system and managers face many challenges to their job. Through the operational
strategies of this game I was required to access areas such as financial and accounting
planning, relationship development, market and product research, inventory management and
information technology. In the initial instance of the game, I realized the challenges of
managing a real-time operation.
Supply chain managers are hired to accurately allocate resources and make forecast
predictions. For the two cell phone lines (Model A and Model B) I had full control over the
design, forecasting, and production. During the four years in designing the phones I decided
to only add options that would increase gross profit and tried to avoid high standard deviation
because that implies in large disparity in forecast. I was confident about my selected design
options for the first three years based on profitability, but during year fourth I should have
tried a combination of new technology options for an increase in sales. Brand innovation is a
big selling point because provide a premium experience and consumers will pay more for
innovation in cell phone. But overall, I was able to find a balance for a combination of
market research and innovation with high margin products.
After finishing the design for both models the next step was forecasting. For forecasting,
after the first year I used historical data (average of previous forecasts) and took into account
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the consensus from the board members. I wish the game had more insights based on
consumer behavioral and trends.
Production planning turned out to be the most difficult strategy as cell phone lifecycles
are short-lived and we had little control over inventory. In the production approach I choose
to select multiple suppliers throughout the four years to take advantage of low cost and lead
time. The FarAway supplier overseas had shipping and deliver time of three months so I
decided to start production in February since sales started in May. The majority of our Model
A production was outsourced through FarAway because of low unit cost and sales stability.
Model B production was split between PrettyClose and VeryClose (domestic suppliers) to
minimize the risk of fluctuation in sales and have the flexibility of zero lead time. For every
year I made a decision to invest in the Celldex show to receive more accurate information
about demand. Over the four years I tried to be mindful to only issue production change for
the cost of $2 million if I had the Celldex information early in the production cycle. I noticed
the quantity limitation when requesting order change during Year 3. The production in the
third was overestimated and I had high markdown for both models in the end of year. Once
again, I should have figured out after the first round that over stocking the shelves are more
expensive than running out of phones towards the end of year. However, I believe the
simulation had a positive outcome since I was able to maintain over the four years an average
of $41k in gross margin and 26% of gross percentage.
For the majority of the simulation I followed the advice of the board which resulted in
positive responses with a total of 10 votes. As the fourth year came to an end the advice from
the board was generally related to risk-based on decision making, the difference of over
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producing and under producing and considerations about capacity allocation and costs
associated with markdown.
The simulation outcomes helped reinforce basic supply chain concepts, and gave better
understanding of how to adjust quickly to unexpected shift in demand and remain profitable
in the market.
5- Reflection
The simulation game is like a laboratory in which is possible to test strategies, make
decisions and evaluate its respective outcome. Just as biologists perform experiments in
laboratories or pilot that uses flight simulator; students and executives can use this game as a
training tool to expand their knowledge, and develop skills in different key areas of supply
chain. Similar to flight simulators, this game also simulate a real case alike business reality.
As a manager of the company, I was at the forefront of decision making. Like in the real
world many repercussions of my decisions were seen immediately and others later in the
production cycle.
One of the challenges of the game was choosing different product options since the game
does not provide information based on demographics and economy status. Understanding the
effects of marketing research would help the supply chain manager determine demand.
Research in my career is indispensable to decision making because it gives a picture of what
is happening and what is likely to occur in the future. Using research to support decisions is
not only important to understand the target market, but also to evaluate price elasticity,
competitive analysis, and advertisement opportunities. In the game, this is where the board
members advice helped the supply chain manager.

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The simulation was helpful because made me responsible for the outcome showing the
importance of carefully plan sales and operations planning (S&OP). The existing trade-offs
between multiple suppliers, lead time, investment in the Celldex and production changes
were fundamental to be evaluated. The performance of the game allowed me to experience
typical supply chain tasks and problems. At the end of year fourth, I was able to gain insights
about supply chain management, especially in the following areas:
 Product (consumers need, technology trends, price elasticity)
 Suppliers (capacity, lead time, set-up cost, and unit price)
 Relationship development (loyalty, word of mouth referrals, business
opportunities, build a strong internal team)
 Sales forecasting (demand, inventory control, financial planning, internal control)
 Storing data (gain insight, continuous improvement)
 Marketing research (customer behavior patterns, identify potential customers,
competitor analysis)
The final lesson is the need of every organization whether small or large to achieve a
sustainable strategy to maximize profitability. The success of a company depends on
supply chain management streamline from design, planning, forecasting, and monitoring
inventory. This game made me realize the impact of the supply chain management as an
integral part of most business, including personally, my profession as a manager. As a
relations manager of a tourism company it was important to see the value of supplier
relationship management. Long-term supplier relationship plays a central role to ensure

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quality, time delivery and flexibility in change of orders. The game was an interactive,
fun, and rich learning tool to enhance my knowledge and skills connected to supply chain
concepts.
References
Durrani, A. (2015). The Importance of Long-Term Supplier Relationships. LinkedIn.

Retrieved from https://www.linkedin.com/pulse/importance-long-term-supplier-
relationships-amjad-durrani/
Spencer, A. (2016). Two Thirds of US Smartphones Users Stream Music Daily. Mobile
Marketing. Retrieved from: http://mobilemarketingmagazine.com/music-streaming-
mobile-smartphone-daily-us
Aeppel, T. (2017). Americans want U.S goods, but not willing to pay more: Reuters/Ipsos
poll. Reuters. Retrieved from: https://www.reuters.com/article/us-usa-buyamerican-
poll/americans-want-u-s-goods-but-not-willing-to-pay-more-reuters-ipsos-poll-
idUSKBN1A3210
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Figure 1: Simulation – Production Room Year 3

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Figure 1. Operation and Supply Chain Management Simulation. Production Room Year 3
Appendix A
Summary for each year in the simulation

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Operations and Supply Management Simulation Anita Souza Davenport University MGMT757

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Running Head: Operation and Supply Chain