OPTReport

By:AdrianChu,DepartmentofIndustrial&SystemsEngineering,Universityof Washington,Seattle,Washington98195.November12,2009.

TheGoal
Every manufacturing company has one goal to make money. In order to do so, a company must considerthreeimportantmethodologiesofmeasuringprogresstowardthegoal:throughput,inventory andoperatingexpense. Throughput is the rate at which the system generates money through sales (Goldratt 60). An item must be sold, not just produced for an item to be considered throughput. In addition, production managers must work with sales and marketing people to ensure that the most optimal quantity is produced. Inventory is all the money that the system has invested in purchasing things which it intends to sell (Goldratt 60). Accountants typically consider inventory an asset on the balance sheet. Many companiesfailbecausetheyneglectedtheimportanceofhavingsufficientcashflow.Workinprogress orproductsthatdontsellareilliquidandcannotreadilybeconvertedintocashorequivalents. Operating expense is all the money the system spends in order to turn inventory into throughput (Goldratt61).Manypeopleconsidervalueaddedlaboranassetasitincreasesthevalueoftheproduct being made. However, it is simpler just to consider labor as overhead since both inventory and operatingexpensearenegativewhilethroughputispositive.

OPTGame:InitialStrategy
First,Idecidedtomakealistofthevariablesandconstraints.Setuptimeandproductiontimeforeach unitisgiven.Anotherconstraintisthatonlyoneredandonegreenstationcanbeusedatonce.Somy first strategy is to keep stations running and productive as long as raw material stocks are available. Sincewehaveunlimitedcustomerdemand,overproductionwouldnotbeanissue.Next,myplanisto keep A and B running at the same time and then C and D running at the same time while making changesasneeded.Myinitialbatchconsistedof50RawMaterialAsand100RawMaterialBssinceI knewBwasproducedfasterthanA.Ihadmadesomecalculationsusinginformationprovided.Please

seeattachedappendicesformoreinformation.Itisclearthatweshouldmakelargerquantitiesineach batchduetolengthysetuptimes.Thefollowingistheresultofmyfirstround:

WeekOneResultsfrommyfirstroundoftheOPTGame.

OPTGame:Revisionofstrategy1
OnemajorissueInoticedafterplayingthefirstroundisthattheyellowstationsstayedidlefortoolong. Since yellow is independent of the other stations, we must have it start setting up from the very beginningtoavoidanywastedtime.AnotherfaultisthatIpurchasedtoomanyrawmaterials,which causedrawmaterialcoststoexceedsalesrevenue.Fromcalculation,weneedtomakeatleast$2,500 tobreakevenonouroperatingexpenses.Theprofitpotentialforeachunitis$40perunit,soweneed tobuild63unitsinoneweektoavoidbankruptcy.However,ifweassumeourinventorywillbe$0,then wecansurviveweekonehavingjust$1,000profit,whichequalstoonly25units.Soourimmediategoal shouldbetomakeatleast2563units,dependantontheamountofinventorywehaveonhand.

 WeekOneResultsfrommysecondroundoftheOPTGame.

OPTGame:Revisionofstrategy2A
Thistimewesurvivedweekone.However,westillexperiencednegativecashflow,whichmeansifwe dontmakeupforthat,wewillnotsurviveweektwo.Withonly$120left,itmeansthatwemustmake $2,380inordertomeetthebreakevenpointforweektwo(60items).Incomparisontothefirsttrial, the idle time for red was reduced from 13% to 8%, green increased from 1% to 43% while yellow decreasedfrom68%to58%.Fromred,wecantellthatitisabottleneckasthroughputincreasedasa resultofalowerredidletime.Greenisdefinitelynotthebottleneckasthroughputincreasedwhileidle time drastically increased. This proves that idle time is not necessarily a bad thing. Who cares if we have to pay them wages for sitting? Yellow idle time decreased by 10 percent due to increased final assemblyproduction,butitisnormalforittobehighersinceitdependsonredandgreen.OnethingI forgot here was that I could click Sell near the end of the work day on Friday to sell the individual productsthathasntbeenfullyassembledandturnitintocash.

 WeekTwoResultsfrommysecondroundoftheOPTGame.

OPTGame:Revisionofstrategy2B
Itseasiersaidthandone!Inthisround,Ifailedtosustainthefulloptimizationofthebottleneck(red stations)andcompletedfewerunitsthatlastweek(30vs.lastweek32).Thenewstrategyistomake surethatredstationsareneveridle.Wemustsubordinateeverythingelsetothebottleneck(Goldratt 301).

 WeekOneResultsfrommythirdroundoftheOPTGame.

OPTGame:Revisionofstrategy3A
We once again survived week one with having the same 8% idle rate for red stations and more productivegreenstations(38%vs.43%lastone).Howeverthisweekweweremoresuccessfulsincewe have 18 preproduction parts at Station E versus 10 for our previous round. This will give us a slight head start for week two. At the end of this week, we have $110 cash, which means we will need to produceandsell60units.

 WeekTwoResultsfrommythirdroundoftheOPTGame.

OPTGame:Revisionofstrategy3B
Thistimeweproducedfewermainproducts,butfocusedontosellingspares.However,Iwasnotaware ofthefactthatthenumberofspareswecansellcannotexceedthenumberofmainproducts.Yet,this mademediscoveronething:sparesareessentialforthesuccessofthecompanyastheyproducemore profitthanthemainproductitself!Overallnetcashflowwas$1,840forthistrialwhileitwas$2,790 fortheprevioustrial.Sothisisanimprovement.Inaddition,Inoticedthathavingontimedeliveriesis crucialforthemostefficientmanufacturingsystem.Nextplan:makesurewesellsparesandnonspares accordingly.

 WeekOneResultsfrommyfourthroundoftheOPTGame.

OPTGame:Revisionofstrategy4A
Netcashflowincreasedto$1,300forthisround.Idletimeforredreducedto5%.Idletimeforgreen alsoreducedto8%.Netcashis$250,soweonlyneed$2,250worthofgoodstomakeitpastweektwo. Weneedtosellthesameamountofeachparttomaximizeourprofitability.Forthisround,Iusedthe followingalgorithmforaweek: 1. StartAwith30andstartBat60.StartsettingupE. 2. IfBisfinished,thenstartCandD. 3. OnceCisdone,startA. 4. OnceDisdone,startB(makesurenottooverspendonrawmaterials,sothatwehave2500for theendoftheweek). 5. Sellmainproducts(limitedbythenumberofgoodsfinishedbyStationA).TheremainingBCD products,sellasspares. Thealgorithmprovidedusthemostsuccessfulweekoneresultsoutofalltheprevioustrials.

 WeekTwoResultsfrommyfourthroundoftheOPTGame.

OPTGame:Conclusion
Althoughnetcashflowisstillinthenegative,ourplantsurvivedweektwowith$630infreecash!We areonourwaytoprofitability.Inthefuture,Iwillmakesuretosetthegamespeeddownatthecritical pointstoavoidwastedidletime.AnexampleofacriticalpointwaswhenStationCwasreadytofeedto theStationDwhichalreadyfinishedsetup,buttherewaswasteofafewminutes(ingamesimulation time)sinceIwasnotabletoclickthemousefastenough.AnothersituationwasthatattheveryendI triedtomaximizemysalesforProduct1spares,butIdidntwanttorestockasmuchrawmaterials,soI didsoinincrementsof5.Butwhileatspeed10onthetrainingmode,therawmaterialstockstoodat zeroforafewminutes(ingamesimulationtime).Thisresultedina4%idletimeforthebottleneckRed resource. According to Goldratt, bottlenecks should never be idle, as they control the speed of the entiresystem.Hence,itwassuggestedthatevenanoldermachineshouldbeusedtomakesurethe bottleneckprocess(Goldratt190).However,itisperfectlylegitimatetohavenonbottlenecksstayidle sincethecloseryoucometoabalancedplant,thecloseyouaretobankruptcy(Goldratt86).

ThealgorithmfromweekonewasrevisedslightlytoemphasizesellingofProduct1spares,asnoneof those were sold in the first week. Near the end of the second week, the BCD production line was stopped,sinceitwasimpossibletostartrunninganynewrawmaterialsfromscratchforthatlinewhile StationAwasoverlybusywithcustomerdemand. Increasing throughput is a major objective for any industrial enterprise as doing so will enable the factorytomakemoney.InthemostrecenttrialoftheOPTgame,Ididnotmaximizecustomerdemand due to lack of time and different production constraints. I sold 58 units of the main product, which meanstherewillbecustomerdemandfor58Product1sand58Product2s.Duetothetimelimitations, I was only able to sell 33 Product 1s and 42 Product 2s. Additionally, I feel that more optimization should be done such that the result will have equal amounts of sales for each product, as once again spareproductsaremoreprofitable.ThesystemismadesuchthatyoucannotstartproducingProduct 2sfromscratchunlessyoustopproducingProduct1s,sinceStationsAandCarebothredresources. Inventoryisanotherkeyindicatorofaplantssuccess.Overall,Iendedupwith2inventoryparts.Yet bothofwhichcouldhavebeensoldifIhadbeengivenmoretimeastheyqualifyasProduct1spares. One issue with inventory control was that when I moved an item that could be sold as Product 1 to Station E, it could not be sold as a spare product again (or I didnt know how to). Yet, these are not really significant issues as in a real manufacturing plant, the two inventory items could actually have beensoldsincetherewascustomerdemandforit.Thus,basically,wehavenoinventorywhatsoever whichisakeyreasonfortheplantssuccess.AsGoldrattsays,inventoryisalsoanexpense(Goldratt 87). Operatingexpenseisanelementinthesimulationthatisbeyondourcontrol.Itis$2500perweekno matterwhat.Sothissimplifiedthesimulationsothatweonlyhadtobeconcernedabouttwoofthe indicators:throughput(sales)andinventorycarryingcosts.Overall,therewasmorecustomerdemand than production, so we can try to better optimize our bottlenecks (approach 0% idle time) to meet customerdemand.Tomaximizeprofit,wecouldsellonemainproductandonespareatonetimeand trytokeepsaleslevelsmorebalanced.Inventorycarryingcostswereverylowoverthecourseofthe twoweeksimulation(3percentofallassets,theother97percentiscash).Althoughthecompanydid notyetrecoupitsinitialinvestment,thissimulationwasarewardingexperience. Source:Goldratt,EliyahuM.TheGoal:AProcessofOngoingImprovement.GreatBarrington,MA:The NorthRiverPress,2004.