The Business Simulation:

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Decision Master
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- Operations

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Professor Andrew Robson

18/01/22 1
 Key Operations Decisions
• Operations aspects relevant to the simulation
• Research and Development (R&D)
• Production Levels – Factory Size and Capacity
• Productivity – by Model Size
• Minimum Levels of Employee
• Automation
• Employee Development
• New Model Investment
 Operations aspects relevant to the
simulation
• The simulation involves decisions (explicit and/or part of the
simulation output) on:
– Capacity for production
– Automation
– Warranty Costs
– Production Levels
– Worker training investment and reward (weekly wages)
• It doesn’t involve decisions on the associated supply chain:
– Material and component delivery from suppliers
– Despatch of finished cars to customers
 Research and Development I
• Investment in research and development projects is possible for each model, if
successful, they can increase the model's value in the future.
• Time and money must be invested on each project and failure is possible.
• There are five 'failsafe' projects that are guaranteed success; Product Relaunch,
Facelift, Fuel Efficient Engine, Ultra Low Emissions and Improved Build Quality.
• R&D projects are divided into two phases:
– Phase 1: The research phase - initial work in preparing the project. This
includes customer and technical research, prototype development and testing.
– Phase 2: The development phase - taking the prototype work and developing it
for production. This includes design engineering, application, material selection
and tooling for manufacturing. At the end of each year, an R&D report will be
provided that gives the year that the project is expected to come online (or
failure). A project can be stopped at any time before it is available (online) but
money already invested will be written off and the stopped project will have
failed.
 Research and Development II
• Details of the times needed for each phase for individual projects are given in the
operations manual.
– Remember, you are only managing the company for four years, so concentrate on shorter-term projects.
– The presentation of time is of the form {2 + 1}, phase 1 and 2 respectively. This example is a 3 year project.
• The first figure is for Research, the second is for Development.
• Projects in bold in the operations manuals are failsafe.
• The research phase of projects only needs to be carried out for one model as it
represents a company investment to be used for all models. When a project is
being researched on one model, the R&D decision screen for the other models will
show it as "Being Researched" and it will not be available for selection until the
project is online for the first model (or fails). Once online for one model, a project
will become available to begin the development phase for other models (the
second of the two time numbers shown in the project duration), as required.
• There are three exceptions, model specific projects where research needs to be
carried out on every model as required. They are: Product Relaunch, Facelift,
Improved Quality Build.
 Research and Development III
• Until the project is online, the box must be “checked” (i.e.
switched on) for it to continue, if not, the project will be stopped
(and failed) and money already invested lost.

• Research and Development costs presented as part of the Profit

and Loss Statement also includes 50% of any new model
investment.

• Continuous investment in R&D can create a "Centre of

Excellence" within your company capable of delivering projects at
significantly lower cost, it also sends positive messages out to the
market.
 Production Levels – Factory Size and
Capacity
• Factories are required to house workforce and production lines.
• The cost of a factory is shown on the Cash Flow Statement at the end of year 1,
this is £670m. They only appear in subsequent years if you purchase further
factories.
• Each factory has capacity for 4,000 workers (production and management
employees) and unlimited amounts of automation, i.e. 4,000 workers alone is one
factory, 4,000 workers with any amount of automation is still one factory.
• New factories are automatically purchased if the workforce exceeds 4,000 or
multiples thereof, e.g. for 4,001 and 8,000 people, two factories are purchased.
• If the number of employees falls to 4,000 or below, additional factories will
automatically be sold.
• If a factory is sold, it realises 60% of its book value (accounting for its age and
depreciation). The oldest factory is sold first. Any number of cars may be
produced in a factory.
 Productivity – by Model Size I
• The number of each model built will depend on the workforce allocated to the
model, productivity for the model size and any automation investment (this is
discussed later in this presentation).
• Productivity is measured by cars/worker/year:
– Small cars: 44, Medium cars: 42, Large cars: 41, Luxury cars: 9.
• A productivity target is set for each model. Low targets allow time for improved
build quality whilst high targets may require overtime and can affect worker morale
and product quality.
• The target set will be the maximum amount of cars produced in the year.
– If we had a line making city cars, with 1,500 workers:
– Potential Production = 44 x 1,500 = 66,000 cars
• Target Production should be set at 90% of this, i.e. 90% x 66,000 = 59,400 cars to
allow for machine down time, late supplies, staff absence.
 Productivity – by Model Size II
• Target productions by model can have the
following outcomes:
– Production for the model can be met.
– Production for the model can be met with
overtime.
– Production for the model can not be met.
• The first is OK, the second raises problems
around employee satisfaction and product
quality, the third is not possible!
 Minimum levels of employee
• This has to be set as a minimum of 100 workers per line to
ensure maintenance, with or without any actual production.
• This may become important in certain cases:
– Where a new model was planned for a given year, but a
delay is required.
– Where production has shrunk or stopped due to excess stock
that needs to be cleared so as to reduce stock handling costs.
– Workers may be made redundant here (cost and strike
implications) or reallocated to other models.
– Where the markets are shrinking, so one of the models is
starting to be phased out.
 Automation I
• Productivity can be improved by investing in automation, paying
higher wages and investing in worker training.
• Automation can be introduced and purchased in units of £1m (the
price rising annually with inflation).
• Each unit is as productive as ten workers, e.g. 4,000 workers + 1
unit of automation will give the equivalent of 4,010 workers.
• The equivalent workers are not taken into account in the total
factory capacity, i.e. 4,000 workers + 10 units of automation will
still only necessitate one factory (see earlier slide).
• Each unit of automation requires manning to be effective, i.e. one
man per unit.
– If you had 400 workers, but 500 units of automation, only 400 of the
automation units would be effective.
 Automation II
• Automation must be divided between the models – assign a
percentage of the total automation to each model, so these
add to 100 (i.e. 100%) on the decision screen.
• Some models can be highly automated, others may be
predominantly hand built.
• To keep the automation working at full capacity it must be
maintained, costing 10% of the original investment per year.
• Investment in automation is optional and must be entered in
the automation decision box on the decision screen.
• Investment in automation should align to product mix, factory
capacity requirements and company vision.
 Employee Development
• In highly automated factories (where high volume and low margin per
model are the likely aims), development of skilled staff is crucial, as is
their retention.
• This may be achieved by:
– Above average sector wages.
– Above sector average training in development, the average being 2% of the total labour
bill.
• The outcome of this investment and linkages between decisions relating
to operations management and HRM are:
– Reduction in the number of staff absence or strike days.
– The increase in product quality as demonstrated by warranty cost per car for each
model.
– Warranty costs increase by size of model for city, medium, large and luxury cars. If you
consider warranty cost per car by model year-by-year, enhanced quality is
demonstrated by this reducing in £ value.
 New Model Investment I
• Two models are produced in the first year of your operations.
• There are no upfront investment costs associated with models 1 and 2,
just the production costs as specified by your management team.
• It is possible to launch one new model each year through financial
investment. Investment must be made the year before production
commences, i.e. to launch a new model in year 2 (to add to the two at the
starting point), investment must be made in year 1.
• Decisions relating to the new model are made during the subsequent
round of the simulation, e.g. invest in year 1, launch model/make
decisions in year (round) 2.
• The average financial investment needed for a new model is £360m in
year 1, the choice made by your management team can be half to twice
this value. Significantly low values inhibits potential model success,
excessive investment makes cost benefit and financial viability an issue.
 New Model Investment II
• The amount invested to support the launch of your new model will have
an impact on the degree of its success.
• On the financial statements 50% of the investment will be shown on the
Profit & Loss Statement as R&D and 50% on the Cash Flow Statement as
production costs.
• The cash investment is added to the assets on the Balance Sheet and
depreciates 10% annually.
• Once a decision has been made to launch a new model the project cannot
be stopped but the launch can be delayed by allocating the minimum of
100 workers to the model (see earlier slide and rationale around line
maintenance) and setting production on its line to zero.
• The model specification will still have to be made as the workers will be
producing a small number of prototypes and associated pre-launch
products for demonstrations.