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 the
first part is to present to the instructor some of the educational objectives of and methods
available for teaching with SIMPRO. In Part B a step-by-step description of the computer
operations necessary for utilizing SIMPRO is given so that the teacher can have the
simulation running with relatively little effort.

PART A
TEACHING WITH SIMPRO

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

Section 1
EDUCATIONAL 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 different
kinds 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 expect
decision-making with SIMPRO to be as sophisticated as he would with students in an
advanced one. In the first course, he might emphasize the mastery of basic concepts, the
application
_______________________________________
1
In numerous sections of this manual, we have drawn heavily upon the Teacher's Manual for
MARKSIM: A Marketing Decision Simulation, by Paul S. Greenlaw and Fred W. Kniffin
(Scranton, Pa. International Textbook Company, 1964), and the Teacher's Manual for
FINANSIM: 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 long
run cost minimization, the meeting of the firm's deman schedules, and the like. On the other
hand, in a more advanced course he might concentrate on more sophisticated types of analysis
and more rigorous applications of quantitative decision-making tools.

Chapter 1 of the SIMPRO student text presents some of the major kinds of learning that
students may acquire from engaging in the simulation. In the following paragraphs we will
suggest 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 problem

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

STUDENT INVOLVEMENT AND MOTIVATION

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

WORKING WITH OTHER PERSONS

Business simulations provide one of the relatively few opportunities that the business student
has in his courses to work with other individuals in solving problems. When a SIMPRO firm
is staffed with two or more students, each will need to respect the point of view of others and
to resolve personal differences in coordinating the decision making. Further, members of each
firm will need to establish authority and responsibility relationships among themselves in
order 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 decision
making can be presented to the student. Further, skill by the student in their application can be
fostered by problem and case study a,a'ysis. However, such skill-oriented techniques have
often been limited = :heir ability to provide the student with an opportunity to apply numerous
concepts and analytical tools at the same time to complex, interrelated dynamic decision
problems over time, as must real world managers. Providing such an experience in relating
theory to practice is one of the basic objectives of SIMPRO -- e.g., simultaneously applying
quality control analysis, production Scheduling techniques, economic order quantity (EOQ)
models, etc. -- to a decision problem comprised of numerous interrelated variables, in which
the student must understand not only the current implications of his decisions, but those in
future periods as well.

While no one would maintain that the SIMPRO learning experience is equivalent to
experience in the real world (since the simulation does not replicate :ompletely the richness of
reality), the use of SIMPRO may provide at least a partial resolution of the problem of
relating 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 facilitate
the learning and mastery of certain basic concepts and techniques of production management.
In calling for decisions period after period, SIMPRO requires repetition over time and
provides reinforcement. This procedure is consistent with the following basic principles of
learning.

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

SIMPRO may be administered to take advantage of these basic learning principles in teaching
selected facets of production management. In the following section we will suggest numerous
administrative procedures designed to enable teachers to achieve the above mentioned
benefits in using SIMPRO.
 -4-

Section 2

ADMINISTRATIVE PROCEDURES FOR SIMPRO

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

In performing each of these different types of activities, the instructor has a variety of
alternative procedures open to him, the selection of which depends upon his objectives and
resources. 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 be
handed in by his students. One mode of play is to conduct the simulation on a continuous
basis with an hour or less for each decision period. With such a schedule, several periods of
play can be completed in a single day. While this type of schedule has been used frequently
for gaming competitions among colleges, in executive development programs, and in short
courses, it suffers the disadvantage of seriously limiting the time available to participants for
analysis 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, the
SIMPRO text was developed with the thought in mind, that the decisions be scheduled so that
students are allowed ample time for analysis, discussion, and reflection. One decision due
each class meeting, or the equivalent of two or three decisions a week, has proven satisfactory
in classes at Penn State. We have found that with this scheduling, students have had ample
time between class meetings to carry out their analyses and to properly formulate their
decisions. 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 the
instructor can observe and coach them in their decision-making sessions.

In general, more time should be allowed between decisions for the first few periods when
students 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 a
class period often is distracting because of the strong interest of students in how well they
have done. In consequence, most instructors have preferred to hand out results at the end of a
class period or to have students pick up their results from a secretary or other designated
person; 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 to
wrestle with problems of organizing and working as a team; (2) each student can specialize to
some extent in a part of the total SIMPRO problem, so that less time is required of him in
carrying out some of the detailed computational work called for in SIMPRO; and (3) fewer
firms are necessary for any given number of students assigned in groups, thus necessitating
less computer time.

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

There are two advantages of having one student responsible for managing all phases of a
firm's operations. First, the student has full responsibility success or failure of the firm, so that
there is no "passing the buck" and in sequence, the evaluation and grading of student
performance is simplified. Second, the student -- not being required to face the problems of
working 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 with
business simulations.

1. The teams may be permitted to organize and distribute the work needed to be performed
among their membership in any manner they choose.
2. The teams may be required to assign a member to each of several different company
positions or roles defined by the game administrator - such as president, vice president in
charge of production, etc. Or the administrator himself may select a particular member for
each 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 themselves
which member shall carry out each task; or the administrator may assign the tasks to
particular members.
4. Both roles and tasks may be assigned to particular group members, either by the team itself
or 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 as

indicated in (1) above, is that they may gain experience in organizing their work. Starting the
play as an unstructured group, students must necessarily determine the tasks that each
member will perform, the "authority" relationships which will exist in the firm, etc., in order
to conduct the activities of the company. On the other hand, by making definite assignments
to 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 by
the 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 the
rules and mechanics of the simulation. We suggest therefore that prior to the beginning of
operations, 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 and
mechanics 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. This
process provides for reinforcement in the learning of concepts and tools -- an advantage
unique to SIMPRO in comparison with most other simulations.

The ways in which the instructor will want to assign reading from the text will vary
depending 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. This
chapter provides an overview of SIMPRO objectives and decisionproblem areas. Then, in
individual play, we generally recommend the assignment of Chapters 4-8 in order as rapidly
as 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 text
materials he is utilizing, and the background of his students. For example, if raw materials
acquisition and EOQ models are normally covered before production scheduling in the
course, the instructor may want to assign Chapter 6 before Chapter 5.
 -7-

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

1. Someone may be primarily responsible for decisions concerning the assignment of machine
operators 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 be
assigned the materials in Chapter 7.

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

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

FEEDBACK FROM STUDENTS

Examinations, assigned written and/or oral reports and the quiz, questions, and planning
forms 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 of
their decision making. The following are suggestive of the many types of questions which
may 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 one
day 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 firm
amounted 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 output
produced in the last 3 periods met that planned? If you have experienced considerable
differences between actual and planned output, to what factors do you primarily
attribute them?

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

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

ILLUSTRATIVE WRITTEN AND ORAL REPORTS

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

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

1. To what extent did your firm change the amount spent for plant .maintenance from
period 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? Do
you 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 were
with respect to: improving efficiency from period to period; the maintenance of inventory
levels; etc., to what extent their actual performance may have deviated from their objectives
and, if so, why? Further, having the students develop charts showing how different variables
changed each period and/or graphs showing relationships between variables (e.g., various
expenditure decisions and cumulative efficiency) may be useful.

When students are asked to develop plans and projections for the future, attention may be
focused on many of the same types of variables as discussed above. For example, students
may be asked: In light of the demand forecasts for the next 3, 4, or 5 periods, what are your
firm's objectives in terms of efficiency, inventory levels, etc? Specifically, what plans have
you 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 of
students from other classes or graduate students, and /or groups of businessmen. When this is
done, 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, since
each firm begins the simulation in an identical starting position in Period 2. Further, the
evaluation 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 own
decisions, but also by those of ther firms, so that "good" performance by one firm may often
be partially a result of "bad" decisions made by other firms. In SIMPRO, in contrast, each
firm's results are solely a function of its own decisions.

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

In our experience, student grades only on simulation performance suffer from two
shortcomings. First, when a firm is being managed by a group of students, some students
often 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's
position that it can never bring its overall performance up to a level comparable to that of
other 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 a
student's work in SIMPRO.

END-OF-GAME PLAY

One problem with PROM as well as with many other business simulations is that of the end
of the game play. In SIMPRO, performance is measured by cumulative efficiency. This
measure can be favorably influenced by participants in an effort to "beat the game" at the end
of play by cutting back on raw material orders, production of intermediate output, quality
control expenditures, and plant maintenance expenditures. The use of such tactics should be
discouraged as much as possible.
 - 10 -

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

1. At the initial briefing and later toward the end of the exercise, he can stress that
SIMPRO is a "going concern" and must be left in that position when play is
terminated. He may wish to penalize participants in his grading of them if they could
not 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 many
periods the students would be responsible for the management of their firms. He might
give them the impression that they will be responsible for more periods then they
actually will be. The administrator can then terminate the game before any undesirable
end-of-game play is possible.

A CHECKLIST OF PROCEDURES
The following checklist is designed to aid the instructor in administering the
simulation.

PREPARATION FOR USE

1. 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 (which
will 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 at
the office or at home. This is a precaution in case the other set is misplaced or lost at the
computer center.

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

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

Decisions To Be Submitted Computer Run Results Returned

For Period
Number 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 Period
Number 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 a
graduate or undergraduate student. The person responsible for punching the decisions on the
IBM cards should double check to make sure that the data on the cards are exactly the same as
the information recorded on the decision forms.

NOTE: The instructor may announce at the outset that in case a firm does not submit its
decision 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 been
made;
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 when
and where decision forms are to be
submitted 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 AND

COMMENTS AND QUESTIONS BY CHAPTERS

In this section are given the solutions to the questions and the quiz _-he SIMPRO text, and
some 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 of
educational simulations in general. One source available on this subject is pages 5 to 31 in
Chapter 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 SIMPRO
environment and decision-problems4 (2) the computer output which he will receive each
period; and (3) how he is to fill in the SIMPRO decision form. In the following sections we
will: (1) give the answers to the QUIZ ON PARTICIPANT INSTRUCTIONS given in
Chapter 2 of the student text, and (2) provide answers to some of the questions students will
often ask the instructor after their reading the chapter.

ANSWERS TO QUIZ TRUE-FALSE

1. False
2. True
3. False
4. True
5. False
6. False
7. False
8. False
9. True
10. False
11. False
12. True
13. True
14. False
15. True
16. False
17. True
18. False
19. True
20. False
21. False
22. True
23. True
24. False
25. True
 - 13 -

FILL-INS
1. $100
2. $9,999
3. 3
4. $25
5. 4
6-7. 40; 50
8. Z’
9-10. $1.10; 857
11. $.015
12-14. Y; X; Z
15. 1,000
16-17. 1; 3
18. $3
19. 2
20. Equipment usage
21. $8
22. $300
23. Training
24. Expedited
25. Breakdown

SELECTED COMMON QUESTIONS AND ANSWERS

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

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

3. Is there any quick and easy way to "beat the game"? Answer: No. The purposes of the
simulation are stated in Chapter 1. It is designed to challenge the student to use the concepts
and analytical tools presented in the SIMPRO text, and elsewhere in the course. Experience
has indicated that those students doing the best job of analysis will achieve the best
performance results in SIMPRO in the long run (although, of course, as in the real world, a
firm 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 attempt
to represent the real world environment for any specific products because if it did, it would
have to be considerably more complex. If the simulation were "supposed" to replicate a real
world product such as television sets: the student might (1) erroneously apply knowledge
he has about the real world to SIMPRO, and/or (2) make some invalid assumptions about
reality from his participation in the simulation.

5. Can the material used in this simulation be used anywhere in the zeal world? Answer: The
concepts and analytical tools can be used in the real world, but not certain relationships in the
model. For example, the
 - 14 -

student should not assume that worker proficiency in any real world firm will improve with
training 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 is

first given to the fundamental types of relationships which exist in SIMPRO. This discussion
points out that decisions made by SIMPRO managers affect both the quantity of output
generated by the firm and the costs of production. The basic focus of this chapter is on the
primary objective of each SIMPRO firm -- that is, long-run cost minimization. We examine
several approaches for measuring cost performance and recommend the use of standard costs
as a basis for calculating long-run cumulative efficiency. This chapter, which is conceptually
relatively simple, lays a foundation for a more thorough and complex treatment of the
SIMPRO 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 actual
production of finished output. The second firm may have out produced the first firm and/or its
mix 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 the
lesser attainment of some other subobjective. For example, the minimization of machine
setups might lead to a shortage of one type of finished output and, as a result, an increased
demand penalty.

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

4. a. X = 356 units x $2.50 = $890

Y = 422 units x $3.50 =$1477
Z = 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 simple
analytical techniques for measuring operator proficiency and for using predicted proficiencies
in the operator training and replacement decisions.

The first part of the chapter is concerned with measuring proficiency and predicting future
proficiency of the firms machine operators. Simple learning curves are utilized. While
knowledge of proficiencies is necessary for improving overall operator proficiency, it is also
vital 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, and
firing 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. Proficiency
Days 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 without
training and 8 with training. His potential is 80%. Thus, his proficiency in Periods 3 and
following (assuming no further training) may be calculated for both the train and work
without training decisions in Period 2 as follows:

Days Previously Days Previously Average

Worked 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 we
round the 93.67. and 94.47. (both to 947.), the equipment usage and wage savings will be
zero:
 - 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 the
training 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, the
SIMPRO 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 at
all in Periods 2-8; whereas we would be training the new operator in each of Periods 2-9. This
results in an additional cost consideration of 8 times $20, or $160 in training costs. If we add
these to the replacement costs of $91, cumulative costs through Period 9 equal $251, while
cumulative 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 daily
savings would be at least $41.60 as they were in Period 9 (which must be the case) in each of
these 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 of
periods for which we would be operating the firm but also the intangible benefits of having
the new operator (e.g., greater flexibility in production scheduling). This is especially true in
this case since Operator 6's proficiency continues to remain less than 1.00; while that of the
new operator reaches a very respectable 1.35 in Period 9.

CHAPTER 5

A central problem involved in managing SIMPRO operations is that of planning and

controlling the production of both finished and intermediate output so as to attempt to meet
the firm's demand schedules while, at the same time, the firm's fundamental objective of cost
minimization. Production planning and control in SIMPRO--as in many real world
operations--is so complex that it cannot be dealt with by any single, all-encompassing
analytical model or decision algorithm. Rather, because of its complexity, the SIMPRO
scheduling problem must be broken down into several sub-problems or stages for purposes of
analysis.
 - 18 -

SIMPRO OPERATOR REPLACEMENT ANALYSIS FORM

New Operator Hypothetical Current Operator 6 .

Profeciency Profeciency Hrs. Saved $ Savings Cumulative Net Gain or

Current New _in_Day _in_Day $ Savings Loss From
Operator Operator 1. 1. H (1 – 1 ) Hrs. Saved Through Replacement
PERIOD Pc PN Pc Pc PC PN Times $13 Day Cum. Savings
Minus $91
2 .93 .76 1.08 1.32 -.24 $-31.20 $-31.20 $-122.20
3 .94 .98 1.06 1.02 -.04 - 5.20 -36.40 -127.40
4 .94 1.11 1.06 .90 .16 20.80 -15.60 -106.60
5 .94 1.19 1.06 .84 .22 28.60 13.00 - 78.00
6 .94 1.24 1.06 .81 .25 32.50 45.50 - 45.50
7 .94 1.29 1.06 .78 .28 36.40 81.90 - 9.10
8 .94 1.32 1.06 .76 .30 39.00 120.90 + 29.90
9 .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 in
relating theory to practice in a complex, dynamic decision situation. We have tried to show
how problems can be structured so that certain analytical techniques combined with
judgemental processes can be applied to aid the SIMPRO manager in meeting the firm's
objective of cost minimization.

Following are answers to the questions given in Chapter 5.

1. X Y Z

1. Demand 1,200 1,100 1,000

2. Minus Beg. Inventory 413 288 323
3. Production Needed 787 812 677
4. Times Safety Allow. .15 .15 .15
5. Safety Allowance 118 122 102
6. Plus Production Needed 787 812 677
7. Total Requirements 905 934 779
8. Divided by Output Rate 50 40 30
9. 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 of
Periods 5 and 6, and the remaining 10 to Period 4.

Hours Regular Inventory

Scheduled Wages Overtime Carrying Costs* Total Costs
Period 4 10 $16 $6 $30 $52
Period 5 12 16 12 24 52
Period 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 hours
will be 9 : 538.2/60 = 8.97.

4.
1. Planned units of final output, Period 2 550
2. Planned units of final output, Period 3 600
 - 20 -

3. Safety stock for Period 3 /10% x (2)7 60

4. Desired ending inv. for Period 2 /(2) + (3)_/ 660
5. Total intermediate output requirements
for Period 2 /(1) + (4)_/ 1,210
6. Beginning inventory Period 2 711
7. Planned intermediate output, Period 2 /(5) - (6)_/ 499
8. Average output rate (50 x 1.03) 51.5
9. 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 to
meet finished output requirements for the first period of the subsequent cycle cannot initially
be undertaken.

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

c. The decision rules for minimizing the sum of wage and inventory carrying costs, which are
available 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 for
intermediate 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 1/3
units/hour. His proficiency would thus have to be 73 1/3 divided by 50; or approximately
147%.

c. No. As indicated in Chapter 4, the highest potential a SIMPRO operator can possibly have
is 120%; and with 9 days of previous experience both working and with training, such an
operator'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 materials
available to meet his production schedules. Additionally, it is important for the manager to
plan his decisions so that the costs involved in raw materials acquisition will be minimized as
much 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 to
fully appreciate the problems involved in applying these models to practical real world
situations. One of the
basic objectives of Chapter 6 is to bridge this gap between theory and practice by showing
how theoretical models can be modified and inventory systems developed to accomplish
practical 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 operating
periods representing multiples of 3 days -since all demand periods (and forecasts) are for 3
day periods. Thus, if the manager were informed by his instructor that he would be
responsible for operating his firm until approximately Period 20, he should base his analysis
for the duration Periods 2-21.

6. Because raw materials usage requirements will vary from day to

day and are not completely predictable, raw material stockouts may occur in some periods. To
avoid stockouts or to minimize their frequency, the SIMPRO manager can use expedited raw
material 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 PROM
and to describe and illustrate the utilization of certain quantitative techniques through the use
of which the PROM manager can make better quality control decisions.
Each SIMPRO manager must understand the types of costs involved in the quality control
problem and the relationships among these costs. Given this understanding, he can develop
and 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 mini mization, his analytical
efforts should be directed toward selecting that level of quality control expenditures which
results 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 = $750

For Y, 420 units x $3.50 = 1,470
For Z, 150 units x $4.50 = 675
TOTAL $2,895

Period 5 Expected Total Total

Expenditures 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 Total
Alternative 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 minimum
point, and then increase. The minimum point on the total cost curve for this problem is likely
to 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 world
maintenance 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 lost
time. However, breakdowns can be prevented or reduced in frequency by proper preventive
measures--expenditures for plant maintenance.
 - 24 -

The basic purpose of Chapter 8 is to examine the types of cost relationship which are involved
in the SIMPRO plant maintenance problem and then to describe and illustrate analytical
methods 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, while
the quality control relationship is not -- it is deterministic.

2. a. The manager must estimate the probability of break downs which

will 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 various
expected break down probabilities in light of his planned levels of production and the number
of machines he plans to utilize.

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

3.
Current Machine Machines Current Machine Machines
Effectiveness 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 Machines

Effectiveness 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 Probability
Class Mean (Relative Frequency) .

$81-120 $900/9 = $100.00 17/72 = .24

121-160 1,109/8 = $138.63 10/64 = .16
161-200 1,462/8 = $182.75 6/64 = .09
201-240 1,378/6 = $229.67 3/48 = .06
241-280 1,310/5 = $262.00 2/40 = .05
281-320 870/3 = $290.00 1/24 = .04
321-360 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 Expected

of Breakdowns Breakdown Breakdown Cost

1.89 $244 $461.16

1.45 244 353.80
1.08 244 263.52
.89 244 217.16