SIMPRO

MANUAL DEL PROFESOR

SIMPRO TEACHER'S MANUAL1

This manual is comprised of two parts. The first focuses attention on teaching with SIMPRO,while the second explains how SIMPRO may be utilized on the computer. The purpose of thefirst part is to present to the instructor some of the educational objectives of and methodsavailable for teaching with SIMPRO. In Part B a step-by-step description of the computeroperations necessary for utilizing SIMPRO is given so that the teacher can have thesimulation running with relatively little effort.

PART ATEACHING WITH SIMPRO

In this part we will present some of the major educational values of SIMPRO, numerousadministrative procedures recommended in utilizing SIMPRO, and notes on and answers tothe questions given in each chapter in the SIMPRO text.

Section 1EDUCATIONAL VALUES OF SIMPRO

Many different educational values may be achieved with business decision simulations.Among the more commonly cited uses of games are:

(1) Introducing students to the terminology, concepts, and decision problems of a discipline,(2) Developing student interest, involvement, and motivation,(3) Having students learn how to work together as a group,(4) Developing planning and control skills under conditions of uncertainty, and(5) Having students learn to apply concepts and analytical techniques in decision making.

From this partial listing, it is evident that business simulations may be used to induce differentkinds of learning and to meet different teaching objectives at various levels of sophistication.For example, in a beginning production,management course the instructor might not expectdecision-making with SIMPRO to be as sophisticated as he would with students in anadvanced one. In the first course, he might emphasize the mastery of basic concepts, theapplication

_______________________________________

1 In numerous sections of this manual, we have drawn heavily upon the Teacher's Manual forMARKSIM: A Marketing Decision Simulation, by Paul S. Greenlaw and Fred W. Kniffin(Scranton, Pa. International Textbook Company, 1964), and the Teacher's Manual forFINANSIM: A Financial Management Simulation, by Paul S. Greenlaw and M. William Frey(Scranton, Pa.: International Textbook Company, 1967), with the permission of the publisher.

- 1 -

- 2 -

of the basic analytical tools given in the text, and the importance of objectives such as longrun cost minimization, the meeting of the firm's deman schedules, and the like. On the otherhand, in a more advanced course he might concentrate on more sophisticated types of analysisand more rigorous applications of quantitative decision-making tools.

Chapter 1 of the SIMPRO student text presents some of the major kinds of learning thatstudents may acquire from engaging in the simulation. In the following paragraphs we willsuggest some of the uses and benefits of SIMPRO from the point of view of the teacher.

SIMPRO AS A FRAME OF REFERENCE

SIMPRO provides an exercise in production management decision making and problemsolving that complements the types of lectures, problems, reading assignments, and casescommonly utilized in production management courses. As such an exercise, it may serve as aframe of reference or focal point for those courses which include the subjects of productionscheduling; plant maintenance, quality control, inventory planning and control, etc. Further,SIMPRO not only introduces students to these significant areas of production decisionmaking, but it also enables them to study and to apply basic analytical concepts and tools in asystematic fashion.

STUDENT INVOLVEMENT AND MOTIVATION

It has been our experience with SIMPRO and other business.simulations that the dynamics ofinterdependent decision making over time tend to lead to substantial student interest andmotivation. One of our objectives in preparing the SIMPRO text was to channel thisenthusiasm toward constructive educational ends by supplying the student with relevantconcepts and selected analytical techniques for production decision making. We have beenpleased to discover that the involvement and motivation generated by the simulation alsotends to carry over to the other course content, with many students exhibiting increasedinterest in reading assignments, discussion and cases. Of course, this has further facilitated thecomplementary use of SIMPRO as a frame of reference.

WORKING WITH OTHER PERSONS

Business simulations provide one of the relatively few opportunities that the business studenthas in his courses to work with other individuals in solving problems. When a SIMPRO firmis staffed with two or more students, each will need to respect the point of view of others andto resolve personal differences in coordinating the decision making. Further, members of eachfirm will need to establish authority and responsibility relationships among themselves inorder to be able to set objectives and to make decisions.

- 3 –

RELATING THEORY TO PRACTICE

In the classroom, various theories, concepts and techniques useful in production decisionmaking can be presented to the student. Further, skill by the student in their application can befostered by problem and case study a,a'ysis. However, such skill-oriented techniques haveoften been limited = :heir ability to provide the student with an opportunity to apply numerousconcepts and analytical tools at the same time to complex, interrelated dynamic decisionproblems over time, as must real world managers. Providing such an experience in relatingtheory to practice is one of the basic objectives of SIMPRO -- e.g., simultaneously applyingquality control analysis, production Scheduling techniques, economic order quantity (EOQ)models, etc. -- to a decision problem comprised of numerous interrelated variables, in whichthe student must understand not only the current implications of his decisions, but those infuture periods as well.

While no one would maintain that the SIMPRO learning experience is equivalent toexperience in the real world (since the simulation does not replicate :ompletely the richness ofreality), the use of SIMPRO may provide at least a partial resolution of the problem ofrelating theoretical constructs to a dy-amic decision-making situation.

REPETITION AND REINFORCEMENT

As indicated in Chapter 1 of the student text, one basic objective of SIMPRO is to facilitatethe learning and mastery of certain basic concepts and techniques of production management.In calling for decisions period after period, SIMPRO requires repetition over time andprovides reinforcement. This procedure is consistent with the following basic principles oflearning.

Learning is generally most effective when the trainee is actively involved in thelearning process. Further, repetition is important in learning. Numerous researchstudies, however, have indicated that spaced repetition over time is generally moreeffective than continuous repetition within a short time span. Finally, in learning,reinforcement is important -- i.e., to provide the trainee with some reward for goodperformance, and feedback, or knowledge of results is essential if reinforcement is tobe given.

SIMPRO may be administered to take advantage of these basic learning principles in teachingselected facets of production management. In the following section we will suggest numerousadministrative procedures designed to enable teachers to achieve the above mentionedbenefits in using SIMPRO.

- 4 -

Section 2

ADMINISTRATIVE PROCEDURES FOR SIMPRO

While the student plays the role of a decision making executive in SIMPRO, the instructormay assume the roles of administrator, coach or consultant, teacher, and evaluator. As anadministrator, the teacher resolves such questions as the number of persons who will operateeach company, when decisions and assignments are due, and the number of decisions that willbe made. In his role as a coach, he may meet with a firm's management to advise them ontheir actions. As a classroom teacher, he may elect to lecture or otherwise discuss theconcepts, ideas, and problems relating to SIMPRO. Finally, as an evaluator, the teacher maywant to assign grades for student performance in the simulation.

In performing each of these different types of activities, the instructor has a variety ofalternative procedures open to him, the selection of which depends upon his objectives andresources. We will discuss some of the more important alternatives in this section.

TIMING OF DECISION MAKING

As an administrator, the instructor establishes the schedule of times when decisions will behanded in by his students. One mode of play is to conduct the simulation on a continuousbasis with an hour or less for each decision period. With such a schedule, several periods ofplay can be completed in a single day. While this type of schedule has been used frequentlyfor gaming competitions among colleges, in executive development programs, and in shortcourses, it suffers the disadvantage of seriously limiting the time available to participants foranalysis of the problems involved in the simulation; and does not provide spaced repetition.

Although SIMPRO may be used for short courses or as a one or two-day exercise, theSIMPRO text was developed with the thought in mind, that the decisions be scheduled so thatstudents are allowed ample time for analysis, discussion, and reflection. One decision dueeach class meeting, or the equivalent of two or three decisions a week, has proven satisfactoryin classes at Penn State. We have found that with this scheduling, students have had ampletime between class meetings to carry out their analyses and to properly formulate theirdecisions. After students have gained experience from a number of periods of play,occasionally students may be required to make decisions during a class period so that theinstructor can observe and coach them in their decision-making sessions.

In general, more time should be allowed between decisions for the first few periods whenstudents are learning the rules of the simulation (and organizing, when groups manage firms)than in later periods.

Our experience has also shown that to distribute the decision results at the beginning of aclass period often is distracting because of the strong interest of students in how well theyhave done. In consequence, most instructors have preferred to hand out results at the end of aclass period or to have students pick up their results from a secretary or other designatedperson; or at some designated location.

- 5 -

ASSIGNMENTE TO FIRMS – GROUP VS. INDIVIDUAL

Either one student or a group of students may be assigned to manage each SIMPRO firm.Three advantages of group management of each firm are: (1) the students are requiered towrestle with problems of organizing and working as a team; (2) each student can specialize tosome extent in a part of the total SIMPRO problem, so that less time is required of him incarrying out some of the detailed computational work called for in SIMPRO; and (3) fewerfirms are necessary for any given number of students assigned in groups, thus necessitatingless computer time.

In the case of group play, we suggest not less than three students nor more than five studentsbe assigned to each SIMPRO firm. A computer run of ten firms, for example, can servicethirty students assigned three students to a firm fifty students assigned five students to eachfirm.

There are two advantages of having one student responsible for managing all phases of afirm's operations. First, the student has full responsibility success or failure of the firm, so thatthere is no "passing the buck" and in sequence, the evaluation and grading of studentperformance is simplified. Second, the student -- not being required to face the problems ofworking with others in organizing for the decision making and group discussions each period-- will have more time to focus his sole attention on production problems.

GROUP PLAY

A number of alternative patterns of organization and/or task assignments are possible withbusiness simulations.

1. The teams may be permitted to organize and distribute the work needed to be performedamong their membership in any manner they choose.2. The teams may be required to assign a member to each of several different companypositions or roles defined by the game administrator - such as president, vice president incharge of production, etc. Or the administrator himself may select a particular member foreach such role.3. The teams may be required to perform certain specific tasks, such as preparation of a two-year sales forecast or periodic breakeven analysis, and be allowed to decide for themselveswhich member shall carry out each task; or the administrator may assign the tasks toparticular members.4. Both roles and tasks may be assigned to particular group members, either by the team itselfor the administrator.2

___________________________________________

2 Paul S. Greenlaw, Lowell W. Herron, and Richard H. Rawdon, Business Simulation(Englewood Cliffs: Prentice-Hall, Inc., 1962), p. 30.

- 6 -

One advantage of permitting students to develop their own organizational relationships asindicated in (1) above, is that they may gain experience in organizing their work. Starting theplay as an unstructured group, students must necessarily determine the tasks that eachmember will perform, the "authority" relationships which will exist in the firm, etc., in orderto conduct the activities of the company. On the other hand, by making definite assignmentsto each member of the firm, less time will be required to resolve these organization problems,and consequently more emphasis may be placed on production decision making and analysis.Further, task assignment by the instructor may help ensure that the work load handled bythe student teams is divided among the members relatively evenly.

We will discuss task assignments for group play in the following section.

USING THE SIMPRO STUDENT TEXT

In order to receive the maximum benefit from SIMPRO play, students first must learn therules and mechanics of the simulation. We suggest therefore that prior to the beginning ofoperations, the instructor take the following three steps in order to prepare students for play:

(1) Have all students read Chapters 1 and 2 of the text;(2) Hold an oral briefing session at which the instructor answers any questions on

simulation in general and on SIMPRO in particular; and(3) Require the students to complete the quiz following Chapter 2 in the text and/or give

them a comparable examination.

This three-step procedure should insure that students are familiar with the basic rules andmechanics of the simulation. Now students are ready to begin the play!

The balance of the SIMPRO text - Chapters 3 through 8 - is designed to be used on a red-and-do basis. That is, students read and study these materials in order to utilize the concepts, ideas,and analytical tools include therein, in their decision making from period to period. Thisprocess provides for reinforcement in the learning of concepts and tools -- an advantageunique to SIMPRO in comparison with most other simulations.

The ways in which the instructor will want to assign reading from the text will varydepending on his course objectives, whether he provides for individual or group play, etc.

With both individual and group play, we suggest that students read Chapter 3 next. Thischapter provides an overview of SIMPRO objectives and decisionproblem areas. Then, inindividual play, we generally recommend the assignment of Chapters 4-8 in order as rapidlyas feasible as the student continues playing the simulation. Some variations here, of course,may be desirable depending on how the instructor has organized his course, which other textmaterials he is utilizing, and the background of his students. For example, if raw materialsacquisition and EOQ models are normally covered before production scheduling in thecourse, the instructor may want to assign Chapter 6 before Chapter 5.

- 7 -

With group play, these same sequencing procedures may be followed. Or, different membersof the group may be assigned (or permitted to undertake) certain specific tasks; and beinitially assigned reading those sections of the text pertaining to these tasks; while beingassigned reading the remainder of the text later. For example:

1. Someone may be primarily responsible for decisions concerning the assignment of machineoperators and be assigned Chapter 4 ,which deals with this problem.2. Someone may be assigned Chapter 5 so that he may make scheduling decisions.3. Another member of the group may be responsible for quiality control decisions, and beassigned the materials in Chapter 7.

One basic problem which must be faced with such task assignments is that many of the tasksare interrelated and cannot be carried out completely independently. For example, decisionsconcerning quality control expenditures (Chapter 7) cannot be made effectively until afterdecisions have been arrived at concerning the amount of final output scheduled. However,different initial chapter assignments to different team members, may make it possible forsome member of the team to be intimately familiar with each aspect of SIMPRO sooner, thusfacilitating effective team decision making more rapidly.

Utilizing the above approach, it is often considered desirable to rotate students from task totask every few periods. In this manner, each student may be given an opportunity to delvedeeply into each SIMPRO problem area, as well as gain understanding of the decision makingin its totality.

FEEDBACK FROM STUDENTS

Examinations, assigned written and/or oral reports and the quiz, questions, and planningforms in the SIMPRO text all may be used to evaluate the progress of students.

EXAMPLES OF QUIZ AND EXAMINATION QUESTIONS

From time to time, the instructor may wish to examine students on their knowledge oftheir decision making. The following are suggestive of the many types of questions whichmay be included in such exams or quizzes.

(a) Questions of fact about previous decisions and results.

1. Which of your firm's machine operators were trained in the previous period? _______________________________.2. The largest number of units of product X scheduled by your firm in any oneday during the simulation was ________________ units.3. Your firm placed its first expedited order for raw materials in Period ______4. The expenditures for quality control during the previous period for your firmamounted to $ ______________.

(b) Questions requiring an understanding of decision making by the firm.

- 8 -

1. To what extent has your firm's actual level of both intermediate and finished outputproduced in the last 3 periods met that planned? If you have experienced considerabledifferences between actual and planned output, to what factors do you primarilyattribute them?

2. There are a number of factors which prevent you from making "truly" optimaldecisions in managing your firm. What are some of these? In which periods did theypresent the most serious problems for you?

3. Describe and discuss what you consider to be the biggest single mistake you havemade in managing your firm. What have you done, or do you plan to do to prevent itsrecurrence?

ILLUSTRATIVE WRITTEN AND ORAL REPORTS

In addition to quizzes and exams, the instructor may wish to assign students written and/ororal reports in SIMPRO. In these reports, emphasis may be placed upon a review of pastoperations and/or projections and plans for the future. Written and oral reports may be givenperiodically and/or at the conclusion of the simulation.

In calling on students for an evaluation of past operations, questions such as the followingmay be raised:

1. To what extent did your firm change the amount spent for plant .maintenance fromperiod to period? Why?

2. To what extent have your firm's percentage rejects fluctuated during the simulation?What factors have accounted for any such fluctuation?

3. How many hours of overtime were scheduled during the first demand cycle? Doyou believe these hours were too many, too few, or just about right? Why?

In giving such reports it is often useful to ask the students what their specific objectives werewith respect to: improving efficiency from period to period; the maintenance of inventorylevels; etc., to what extent their actual performance may have deviated from their objectivesand, if so, why? Further, having the students develop charts showing how different variableschanged each period and/or graphs showing relationships between variables (e.g., variousexpenditure decisions and cumulative efficiency) may be useful.

When students are asked to develop plans and projections for the future, attention may befocused on many of the same types of variables as discussed above. For example, studentsmay be asked: In light of the demand forecasts for the next 3, 4, or 5 periods, what are yourfirm's objectives in terms of efficiency, inventory levels, etc? Specifically, what plans haveyou made to overcome any past or present performance inadequacy problems?

- 9 -

When such reports are to be oral, they may be made to the instructor, the class, groups ofstudents from other classes or graduate students, and /or groups of businessmen. When this isdone, the student firm is often asked to assume the role of the president of the company,reporting to the instructor et al., assuming the role of the board of directors of the firm.

GRADING STUDENTS

There are two basic ways in which students may be graded on their work with SIMPRO. First,is on the basis of the quizzes, examinations, written and oral reports discussed previously.Second, is upon actual student performance in the simulation.

An equal opportunity for effective simulation performance is available to all students, sinceeach firm begins the simulation in an identical starting position in Period 2. Further, theevaluation of simulation performance is considerably easier in SIMPRO, which is a non-interactive simulation, than in many other simulations which are competitively interactive.That is, in the interactive simulations, each firm's results are influenced not only by its owndecisions, but also by those of ther firms, so that "good" performance by one firm may oftenbe partially a result of "bad" decisions made by other firms. In SIMPRO, in contrast, eachfirm's results are solely a function of its own decisions.

The basic measure of performance indicated in the SIMPRO student text is cumulativeefficiency. Of course, if the instructor wishes, he may want to establish different and/oradditional objectives for his firms, or give the firm some latitude in establishing their ownobjectives and measures of performance.

In our experience, student grades only on simulation performance suffer from twoshortcomings. First, when a firm is being managed by a group of students, some studentsoften contribute substantially while others do not engage as actively in the decision making.Second, one or two bad mistakes early in the simulation may so adversely affect a firm'sposition that it can never bring its overall performance up to a level comparable to that ofother firms, even though it does a good job of analysis in later simulation periods.

In consequence, it is suggested that the instructor utilize some combination of quizzes,examinations, written work, oral reports, and the simulation results in arriving at grades for astudent's work in SIMPRO.

END-OF-GAME PLAY

One problem with PROM as well as with many other business simulations is that of the endof the game play. In SIMPRO, performance is measured by cumulative efficiency. Thismeasure can be favorably influenced by participants in an effort to "beat the game" at the endof play by cutting back on raw material orders, production of intermediate output, qualitycontrol expenditures, and plant maintenance expenditures. The use of such tactics should bediscouraged as much as possible.

- 10 -

We have found that the administrator can take several courses of action to minimizeundesirable end-of-game play such as:

1. At the initial briefing and later toward the end of the exercise, he can stress thatSIMPRO is a "going concern" and must be left in that position when play isterminated. He may wish to penalize participants in his grading of them if they couldnot continue in the management of their firm because of insufficient raw materials,intermediate output, etc.

2. At the initial briefing, he would not provide definite information as to how manyperiods the students would be responsible for the management of their firms. He mightgive them the impression that they will be responsible for more periods then theyactually will be. The administrator can then terminate the game before any undesirableend-of-game play is possible.

A CHECKLIST OF PROCEDURESThe following checklist is designed to aid the instructor in administering the

simulation.

PREPARATION FOR USE1. Order: (1) the SIMPRO student texts for each planned student enrollment following

the regular textbook ordering procedure at your school; and (2) the computer decks (whichwill be provided free of charge) directly from the publisher.

2. Make one duplicate of all of the original card decks you receive and keep them atthe office or at home. This is a precaution in case the other set is misplaced or lost at thecomputer center.

3. Following the directions in the latter half of this manual, put the program on thecomputer, and check its functioning by running decisions for Period 1.

4. Prepare a schedule of times for decision making and computer use. An illustrationof such a schedule is as follows:

Decisions To Be Submitted Computer Run Results Returned

For PeriodNumber Month Day Time Month Day Time Month Day

2 _____ ____ ____ _____ ____ ____ _____ ____ 3 _____ ____ ____ _____ ____ ____ _____ ____ 4 _____ ____ ____ _____ ____ ____ _____ ____ 5 _____ ____ ____ _____ ____ ____ _____ ____ 6 _____ ____ ____ _____ ____ ____ _____ ____ 7 _____ ____ ____ _____ ____ ____ _____ ____ 8 _____ ____ ____ _____ ____ ____ _____ ____ 9 _____ ____ ____ _____ ____ ____ _____ ____ 10 _____ ____ ____ _____ ____ ____ _____ ____

Decisions To Be Submitted Computer Run Results Returned

For PeriodNumber Month Day Time Month Day Time Month Day

11 _____ ____ ____ _____ ____ ____ _____ ____ 12 _____ ____ ____ _____ ____ ____ _____ ____ 13 _____ ____ ____ _____ ____ ____ _____ ____ 14 _____ ____ ____ _____ ____ ____ _____ ____ 15 _____ ____ ____ _____ ____ ____ _____ ____ 16 _____ ____ ____ _____ ____ ____ _____ ____ 17 _____ ____ ____ _____ ____ ____ _____ ____ 19 _____ ____ ____ _____ ____ ____ _____ ____ 20 _____ ____ ____ _____ ____ ____ _____ ____

5. Arrange for punching of decision cards by the computer operating staff, a secretary, or agraduate or undergraduate student. The person responsible for punching the decisions on theIBM cards should double check to make sure that the data on the cards are exactly the same asthe information recorded on the decision forms.

NOTE: The instructor may announce at the outset that in case a firm does not submit itsdecision form on time, its decisions. for the previous period will be used in the current period.

CONDUCTING THE SIMULATION

1. Assign Chapters 1 and 2 to be read by the students and schedule the initial briefing session.

2. At the initial briefing:

a. Answer questions on Chapters 1 and 2 and any other assignments that may have beenmade;b. Explain the criteria for evaluating student performance;c. Assign students to firms (if group play is to be utilized); and d. Inform students of whenand where decision forms are to besubmitted and results are to be distributed.

3. Proceed with the decision making as scheduled.

4. Conduct oral reports as scheduled.

5. Announce any examinations and other written work.

Section 3

SOLUTIONS TO THE PROS IM QUIZ ANDCOMMENTS AND QUESTIONS BY CHAPTERS

In this section are given the solutions to the questions and the quiz _-he SIMPRO text, andsome comments about each chapter. Also, at the end

- 12 -

of this section, chapters in SIMPRO are cross referenced with selected production textbooks.

CHAPTER 1

While Chapter 1 is intended primarily to introduce students to SIMPRO,it should also whet students' curiosities concerning the history, development, and use ofeducational simulations in general. One source available on this subject is pages 5 to 31 inChapter 1 of Business Simulation by Paul S. Greenlaw, Lowell W. Herron, and Richard D.Rawdon, (Prentice-Hall, Inc., 1962).

CHAPTER 2

The basic objectives of Chapter 2 are to familiarize the student with: (1) the SIMPROenvironment and decision-problems4 (2) the computer output which he will receive eachperiod; and (3) how he is to fill in the SIMPRO decision form. In the following sections wewill: (1) give the answers to the QUIZ ON PARTICIPANT INSTRUCTIONS given inChapter 2 of the student text, and (2) provide answers to some of the questions students willoften ask the instructor after their reading the chapter.

ANSWERS TO QUIZ TRUE-FALSE

1. False2. True3. False4. True5. False6. False7. False8. False9. True10. False11. False12. True13. True14. False15. True16. False17. True18. False19. True20. False21. False22. True23. True24. False25. True

- 13 -

FILL-INS1. $1002. $9,9993. 34. $255. 46-7. 40; 508. Z’9-10. $1.10; 85711. $.01512-14. Y; X; Z15. 1,00016-17. 1; 318. $319. 220. Equipment usage21. $822. $30023. Training24. Expedited25. Breakdown

SELECTED COMMON QUESTIONS AND ANSWERS

1. What will happen if a firm makes an error in recording a decision? Answer: Managementwill have to suffer the consequences.

2. What will happen if management neglects to submit its decision form on time? Answer: Itsdecision for the previous period will be used.

3. Is there any quick and easy way to "beat the game"? Answer: No. The purposes of thesimulation are stated in Chapter 1. It is designed to challenge the student to use the conceptsand analytical tools presented in the SIMPRO text, and elsewhere in the course. Experiencehas indicated that those students doing the best job of analysis will achieve the bestperformance results in SIMPRO in the long run (although, of course, as in the real world, afirm may experience good results in a particular period with superficial analysis and some"lucky guesses.").

4. Why are the firm's products not identified? Answer: The simulation model does not attemptto represent the real world environment for any specific products because if it did, it wouldhave to be considerably more complex. If the simulation were "supposed" to replicate a realworld product such as television sets: the student might (1) erroneously apply knowledgehe has about the real world to SIMPRO, and/or (2) make some invalid assumptions aboutreality from his participation in the simulation.

5. Can the material used in this simulation be used anywhere in the zeal world? Answer: Theconcepts and analytical tools can be used in the real world, but not certain relationships in themodel. For example, the

- 14 -

student should not assume that worker proficiency in any real world firm will improve withtraining in the exact same way as it does in SIMPRO.

CHAPTER 3

The purpose of Chapter 3 is to provide an overview of SIMPRO decision making. Attention isfirst given to the fundamental types of relationships which exist in SIMPRO. This discussionpoints out that decisions made by SIMPRO managers affect both the quantity of outputgenerated by the firm and the costs of production. The basic focus of this chapter is on theprimary objective of each SIMPRO firm -- that is, long-run cost minimization. We examineseveral approaches for measuring cost performance and recommend the use of standard costsas a basis for calculating long-run cumulative efficiency. This chapter, which is conceptuallyrelatively simple, lays a foundation for a more thorough and complex treatment of theSIMPRO problems and approaches for dealing with them in Chapters 4-8.

Following are answers to the questions given in Chapter 3.

1. It is not possible to tell which firm is the more efficient without first knowing the actualproduction of finished output. The second firm may have out produced the first firm and/or itsmix of output may have favored products Y and Z, the more costly products.

2. If the SIMPRO firm attempts to more fully attain one subobjective, it might result in thelesser attainment of some other subobjective. For example, the minimization of machinesetups might lead to a shortage of one type of finished output and, as a result, an increaseddemand penalty.

3. The rationality of the SIMPRO decision maker is bounded by time. That is, he doesn't haveunlimited time to be able to conceive'of, evaluate and choose the very best of all possible setsof decisions. Rather, he must be content to select the most satisfactory one from among alimited number of possible decision alternatives. In addition, the interrelated nature ofSIMPRO decisions results in a high degree of complexity which rules out the application ofany all-encompassing optimizing algorithm.

4. a. X = 356 units x $2.50 = $890Y = 422 units x $3.50 =$1477Z = 270 units x $4.50 = $1215

Total Std. Costs = $3582

Efficiency = Total Std. Costs Total Actual Costs

= $3582$3900

= 92%

- 15 -

b. Variance = Std. Cost/Unit - Actual Cost/Unit

Std. Cost/Unit = $3582/1048 units

= $3.42

Actual Cost/Unit = $3900/1048 units

= $3.72

Variance = $3.42 - $3.72

= -$.30

5. Cumulative Total Std. Costs = $8,400 + $3,582 = $11,982

Cumulative Total Actual Costs = $8,900 + $3,900 = $12,800

Cumulative Total Production = 2,480 + 1,048 = 3,528

a. Cumulative Efficiency = Cumulative Total Std. Costs Cumulative Total Actual Costs

= $11,982 $12,800

= 93.6%

b. Cumulative Variance = Cum. Std. Costs/Unit Cum. Actual Costs/Unit

= $11,982/3,528 units - $12,800/3,528 units

= $3.40 - $3.63 = -$.23

CHAPTER 4

The purpose of this chapter is to introduce the student to some concepts and relatively simpleanalytical techniques for measuring operator proficiency and for using predicted proficienciesin the operator training and replacement decisions.

The first part of the chapter is concerned with measuring proficiency and predicting futureproficiency of the firms machine operators. Simple learning curves are utilized. Whileknowledge of proficiencies is necessary for improving overall operator proficiency, it is alsovital in making effective production scheduling decisions.

The focus of the remainder of Chapter 4 is upon the decision to increase operator proficiency.Analytical techniques are utilized for aiding the PROM manager in making training, andfiring and replacement decisions.

- 16 -

Following are answers to the questions given in Chapter 4.

1. Operator UP/PHW x SHR = Proficiency

1 248/6 x 50 = 83%.2 170/6 x 40 = 71%.3 293/8 x 30 = 122%

Operator (UP + R)/PHW x SHR = Proficiency

5 (131 + 25) /8 x 30 = 65%6 (348 + 67) /8 x 50 = 104%7 (122 + 23)/8 x 30 = 60%

2. ProficiencyDays Worked Days Worked of Average Estimated

Operator Proficiency W/O Training With Training Operator* Potential**

1 83%. 1 2 81%. 102%. 2 71 8 1 67 106 3 122 5 6 111 110 5 65 4 1 65 100 6 91 5 7 114 80 7 104 7 7 115 90 8 60 1 1 63 95

*With the same number of days worked with and without training (from Figure 4-2).

**Calculated by dividing Proficiency by Proficiency of Average Operator.

3. Prior to Period 1, Operator 6 had worked 5 days without training and 7 days with training;and he was trained in Period 1. Therefore, as of Period 2, he will have had 5 days withouttraining and 8 with training. His potential is 80%. Thus, his proficiency in Periods 3 andfollowing (assuming no further training) may be calculated for both the train and workwithout training decisions in Period 2 as follows:

Days Previously Days Previously AverageWorked Without Worked With Operator Operator 6's Proficiency

Training Training Proficiency* Potential in Period 3

Work 6 8 117% x 80% = 93.6%.Train 5 9 118% x 80% = 94.4%.

*With the same number of days worked with and without training (from Figure 4-2).

As may be noted, the training will improve operator 6's proficiency only very slightly. If weround the 93.67. and 94.47. (both to 947.), the equipment usage and wage savings will bezero:

- 17 -

S = $13(10) ( 1 - 1 ) = 0 94 94

Even by truncating the 93.6% to 93% and the 94.47. to 94%, S will only equal:

$13(10) ( 1 - 1 ) 93 94

= $13(10) (1.08 - 1.06)

= $130(.02); or $2.60/day.

Although such savings will exceed the initial $20 training costs in the 8th day after thetraining takes place (Period 10), Operator 6 is more likely candidate for firing than training,since his potential is so low (807.). Therefore, we would not train him in Period 2.

4. As is indicated on the "SIMPRO Operator Replacement Form" on the next page, theSIMPRO manager would have to wait until Period 8 to realize a gain by replacing operator 6.However, the data on this form neglects the fact that we would not be training Operator 6 atall in Periods 2-8; whereas we would be training the new operator in each of Periods 2-9. Thisresults in an additional cost consideration of 8 times $20, or $160 in training costs. If we addthese to the replacement costs of $91, cumulative costs through Period 9 equal $251, whilecumulative savings through this period equal only $162.50. Thus a cumulative net loss of$88.50 would in reality be realized through Period 9.

If we assumed that the new operator would not be trained in Periods 10-12 and that the dailysavings would be at least $41.60 as they were in Period 9 (which must be the case) in each ofthese periods, the SIMPRO manager would not breakeven until Period 12.

In making the decision as to replacing operator 6, we would consider not only the number ofperiods for which we would be operating the firm but also the intangible benefits of havingthe new operator (e.g., greater flexibility in production scheduling). This is especially true inthis case since Operator 6's proficiency continues to remain less than 1.00; while that of thenew operator reaches a very respectable 1.35 in Period 9.

CHAPTER 5

A central problem involved in managing SIMPRO operations is that of planning andcontrolling the production of both finished and intermediate output so as to attempt to meetthe firm's demand schedules while, at the same time, the firm's fundamental objective of costminimization. Production planning and control in SIMPRO--as in many real worldoperations--is so complex that it cannot be dealt with by any single, all-encompassinganalytical model or decision algorithm. Rather, because of its complexity, the SIMPROscheduling problem must be broken down into several sub-problems or stages for purposes ofanalysis.

- 18 -

SIMPRO OPERATOR REPLACEMENT ANALYSIS FORM

New Operator Hypothetical Current Operator 6 .

PERIOD

ProfeciencyCurrent

OperatorPc

ProfeciencyNew

OperatorPN

1 .Pc

1 .Pc

Hrs. Saved_in_DayH (1 – 1 ) PC PN

$ Savings_in_Day

Hrs. SavedTimes $13

Cumulative$ SavingsThrough

Day

Net Gain orLoss From

ReplacementCum. Savings

Minus $912 .93 .76 1.08 1.32 -.24 $-31.20 $-31.20 $-122.203 .94 .98 1.06 1.02 -.04 - 5.20 -36.40 -127.404 .94 1.11 1.06 .90 .16 20.80 -15.60 -106.605 .94 1.19 1.06 .84 .22 28.60 13.00 - 78.006 .94 1.24 1.06 .81 .25 32.50 45.50 - 45.507 .94 1.29 1.06 .78 .28 36.40 81.90 - 9.108 .94 1.32 1.06 .76 .30 39.00 120.90 + 29.909 .94 1.35 1.06 .74 .32 41.60 162.50 + 71.50

- 19 -

We believe this chapter is particularly valuable in pointing out the problems involved inrelating theory to practice in a complex, dynamic decision situation. We have tried to showhow problems can be structured so that certain analytical techniques combined withjudgemental processes can be applied to aid the SIMPRO manager in meeting the firm'sobjective of cost minimization.

Following are answers to the questions given in Chapter 5.

1. X Y Z

1. Demand 1,200 1,100 1,0002. Minus Beg. Inventory 413 288 3233. Production Needed 787 812 6774. Times Safety Allow. .15 .15 .155. Safety Allowance 118 122 1026. Plus Production Needed 787 812 6777. Total Requirements 905 934 7798. Divided by Output Rate 50 40 309. Hours Required 18.1 23.35 25.97

2. Following decision rule 7 given in the text, 12 hours of X should be scheduled in each ofPeriods 5 and 6, and the remaining 10 to Period 4.

Hours Regular InventoryScheduled Wages Overtime Carrying Costs* Total Costs

Period 4 10 $16 $6 $30 $52Period 5 12 16 12 24 52Period 6 12 16 12 0 28

TOTAL $132

*$30 = 10($1.50 x 2) 24 = 12($1.50 x 1) 0 = 12($1.50 x 0)

3. Unit Production Requirements = 1.15 (Desired Ending InventoryP

+ Demandp - Actual Ending Inventory P-1)

Unit Production Requirements for Period 8 = 1.15(2,311 + 0 - 1,843) = 1.15(468) = 538.2

With an average output rate of 60 units/hour (50 x 1.20), revised planned production in hourswill be 9 : 538.2/60 = 8.97.

4.1. Planned units of final output, Period 2 5502. Planned units of final output, Period 3 600

- 20 -

3. Safety stock for Period 3 /10% x (2)7 604. Desired ending inv. for Period 2 /(2) + (3)_/ 6605. Total intermediate output requirements

for Period 2 /(1) + (4)_/ 1,2106. Beginning inventory Period 2 7117. Planned intermediate output, Period 2 /(5) - (6)_/ 4998. Average output rate (50 x 1.03) 51.59. Hours required /(7) (8)-7 9.69 or 10

5. a. The scheduling of intermediate output for the last period in any 9-day demand cycle tomeet finished output requirements for the first period of the subsequent cycle cannot initiallybe undertaken.

b. His basic goal should be to attempt to meet final output requirements for each followingday, rather than to meet 3-day demand requirements.

c. The decision rules for minimizing the sum of wage and inventory carrying costs, which areavailable to him are different and much simpler than those available for final output planning.

d. The costs of not meeting his goal (Part b above) are not as clearly definable forintermediate output as they are for final output.

6. a. Revised planned production in hours with an average output rate of 50 times 1.10, or 55,would be 880/55 = 16.

b. The hourly output rate of the most proficient operator would have to be 880/12; or 73 1/3units/hour. His proficiency would thus have to be 73 1/3 divided by 50; or approximately147%.

c. No. As indicated in Chapter 4, the highest potential a SIMPRO operator can possibly haveis 120%; and with 9 days of previous experience both working and with training, such anoperator's proficiency would be 1.2 times 120% or 144%.

CHAPTER 6

A basic objective of the SIMPRO manager must be that of having sufficient raw materialsavailable to meet his production schedules. Additionally, it is important for the manager toplan his decisions so that the costs involved in raw materials acquisition will be minimized asmuch as possible.

Students of production management typically become quite familiar with inventory models.However, many of these models are illustrated under static conditions and the student fails tofully appreciate the problems involved in applying these models to practical real worldsituations. One of thebasic objectives of Chapter 6 is to bridge this gap between theory and practice by showinghow theoretical models can be modified and inventory systems developed to accomplishpractical inventory objectives.

- 21 -

Following are answers to the questions given in Chapter 6.1. Total Cost = Ordering Costs + Carrying Costs + Purchase Costs

Ordering Costs = RS/Q= (50,000 x $100)/7,000= $714.29

Carrying Costs = /(Q-P)/2/ x /($.01, n/;where P = 50,000/20, or 2,500= / (7,000 - 2,500)/2/ x /($.015)20/= (4,500/2) x $.30= 2,250 x $.30= $675.00

Purchase Costs = R/Q($120 + $.96Q) = 50,000/7,000/$120 + $.96(7,000)/ = 7.14($120 + $6,720) = 7.14($6,840) = $48,837.60

Total Cost = $714.29 + $675.00 + $48,837.60= $50,226.89

2. EOQ = 2R(S + $120) = / 2(50,000)($100 + $120) $.015n $.015(20)

= J $22,000,000 = 73,333,333 $.30= 8,563 units

Total Cost = Ordering Costs + Carrying Costs + Purchase Costs

Ordering Costs = RS /Q = (50,000 x $100)/8,563 = $583.91

Carrying Costs = / (Q-P) / f x L$ .015) n / = / (8,563 - 2,500) /2/ x /$.015) 20/ = 3031.5 x $.30 = $909.45

Purchase Costs = R/Q($120 + $.96Q) = 50,000/8,563/$120 + $.96(8,563)/ = 5.84($120 + $8,220) = $48,705.60

Total Cost = $583.91 + $909.45 + $48,705.60= $50,198.96

Savings = $50,226.89 - $50,198.96= $27.93

- 22 -

3. R = (50,000 - 2,149) + (10%)(50,000 - 2,149) = 47,851 + (10% x 47,851) = 47,851 + 4,785 = 52,636 units

EOQ = 2(52,636)($100 + $120) _ $23,159,840 ($.015)(19) $.285

= 81,262,500 = 9,015 units

4. Since regular orders were placed, the raw material acquisition lead time is three periods.

Order Point = Average usage per period times acquisition lead time.= 52 636 x 3 = 2,770.3 x 3 19= 8,311 units

5. No. as indicated in the text, it is advisable to base EOQ order point analysis on operatingperiods representing multiples of 3 days -since all demand periods (and forecasts) are for 3day periods. Thus, if the manager were informed by his instructor that he would beresponsible for operating his firm until approximately Period 20, he should base his analysisfor the duration Periods 2-21.

6. Because raw materials usage requirements will vary from day today and are not completely predictable, raw material stockouts may occur in some periods. Toavoid stockouts or to minimize their frequency, the SIMPRO manager can use expedited rawmaterial orders and/or carry a safety stock. Generally, as the level of safety stock is increased,fewer expedited orders will be required.

CHAPTER 7

The basic purpose of Chapter 7 is to analyze the quality control problem involved in PROMand to describe and illustrate the utilization of certain quantitative techniques through the useof which the PROM manager can make better quality control decisions.Each SIMPRO manager must understand the types of costs involved in the quality controlproblem and the relationships among these costs. Given this understanding, he can developand evaluate alternative solutions to the quality control problem.Following are answers to the questions given in Chapter 7.1. Since the SIMPRO manager's basic objective is that of cost minimization, his analyticalefforts should be directed toward selecting that level of quality control expenditures whichresults in the minimum point on the total cost curve being realized.

- 23 -

2. E2 = .3($200) + .7($300) _ $60 + $210 = $270

E3 = .3($270) + .7($400) _ $81 + $280 = $361

E4 = .3($361) + .7($150) = $108.30 + $105 = $213.30

3. Expenditure Levels:

$100 - - - .3(213.30) + .7(100) = $63.99 + $70 = $133.99

$200 - - - .3(213.30) + .7(200) = $63.99 + $140 = $203.99

$300 - .3(213.30) + .7(300) = $63.99 + $210 = $273.99

4. Standard Costs are:

For X, 300 units x $2.50 = $750For Y, 420 units x $3.50 = 1,470For Z, 150 units x $4.50 = 675

TOTAL $2,895

Period 5 Expected Total TotalExpenditures Reject % Standard Costs Reject Costs $100 10%. x $2,895 = $289.50 $200 5% x $2,895 = $144.75 $300 4% x $2,895 = $115.80

5.Expenditure + Total TotalAlternative Reject Costs = Cost $100 + $289.50 = $389.50 $200 + $144.75 = $344.75 $300 + $115.80 = $415.80

The best expenditure level would be $200.

6. No. As can be noted from Figure 7-2 in the text, total costs first decrease, reach a minimumpoint, and then increase. The minimum point on the total cost curve for this problem is likelyto be for an expenditure level of somewhat more or less than $200.

CHAPTER 8

The SIMPRO maintenance problem contains some of the basic characteristics of real worldmaintenance problems. Any or all of the firm's eight machines may break down in any period.These breakdowns reduce the firm's effective production capacity, and cost money and losttime. However, breakdowns can be prevented or reduced in frequency by proper preventivemeasures--expenditures for plant maintenance.

- 24 -

The basic purpose of Chapter 8 is to examine the types of cost relationship which are involvedin the SIMPRO plant maintenance problem and then to describe and illustrate analyticalmethods for aiding the SIMPRO manager in making effective plant maintenance decisions.

Following are answers to the questions given in Chapter 8.

1. The relationship between maintenance expenditures and break downs is probabilistic, whilethe quality control relationship is not -- it is deterministic.

2. a. The manager must estimate the probability of break downs whichwill occur with each maintenance expenditure alternative that he is considering choosing.

b. He must determine what his total break down costs will be with each of these variousexpected break down probabilities in light of his planned levels of production and the numberof machines he plans to utilize.

c. He must sum expected break down costs and plant maintenance expenditures for eachalternative to give total costs; and then select that alternative which minimizes total costs tothe greatest extent.

3. Current Machine Machines Current Machine MachinesEffectiveness Breakdowns Scheduled Effectiveness Breakdowns Scheduled

Class $81-120 Class $121-160 $ 82 3 8 $ 135 2 8 83 2 8 154 0 8 90 2 8 122 2 8 86 3 8 160 0 8 110 2 8 130 1 8 112 1 8 145 2 8 103 2 8 123 2 8 116 1 8 140 1 8 118 1 8 . . . $900 17 72 $1109 10 64

Class $161-200 Class $201-240

$162 2 8 $ 215 1 8 188 1 8 229 0 8 174 1 8 240 0 8 196 0 8 227 1 8 187 0 8 235 0 8 192 1 8 232 1 8 189 0 8 174 1 8 . . .$1,462 6 64 $1,378 3 48

- 25 -

Current Machine Machines Current Machine MachinesEffectiveness Breakdowns Scheduled Effectiveness Breakdowns Scheduled

Class $241-280 Class $281 - 320$ 278 0 8 $282 1 8 245 1 8 303 0 8 265 1 8 285 0 8 253 0 8 269 0 8$1,310 2 40 $870 1 24

Class 321-360$ 328 0 8 322 0 8 327 1 8 332 0 8$1,319 1 32

Breakdown ProbabilityClass Mean (Relative Frequency) .

$81-120 $900/9 = $100.00 17/72 = .24121-160 1,109/8 = $138.63 10/64 = .16161-200 1,462/8 = $182.75 6/64 = .09201-240 1,378/6 = $229.67 3/48 = .06241-280 1,310/5 = $262.00 2/40 = .05281-320 870/3 = $290.00 1/24 = .04321-360 1,319/4 = $329.75 1/32 - .03

4. TBC = $100 + $24 + $150(Pu/Pn 2)= $124 + $3.00(4,000/100)= $124 + $3(40)= $124 + $120= $244

5.

Expected Number Cost per Total Expectedof Breakdowns Breakdown Breakdown Cost

1.89 $244 $461.161.45 244 353.801.08 244 263.52.89 244 217.16