Costs and Contract Terms

Topics: Costs, Contract, Variable cost Pages: 3 (963 words) Published: January 21, 2013
The Return of The Honeybadgers

Executive Summary
Over the span of 168 simulated days, team Honeybadgers managed the Littlefield Technologies job shop. The team’s objective was to maximize the firm’s cash position relative to the rest of the class. Using 50 days of historical data, the team reviewed re-order points, re-order quantity, capacity, lead times, and therefore contract terms. The team also weighed the cost of new machines against capital for inventory and interest rates, evaluating the return on investment and the impact a new machine had on lead times. Using this consideration set, team Honeybadgers purchased one tuning machine, one stuffing machine, and changed the contract terms on ten occasions. Ultimately, the team placed 5th. -------------------------------------------------

Actions & Analysis
Changing Contract Terms:
A 7 day lead time generated higher revenue than the other contract terms during the first 50 days. However, we observed that there was a stretch of 5-8 days when the lead time was below a 1 day lead time during the first 50 days. Evaluating the first 50 days more closely revealed that approximately every 15-20 days, the lead time dropped substantially. Noticing a pattern, and aware that a different contract time could generate more revenue, we decided to micromanage the contracts to optimize revenue. For the duration of simulation, we adjusted contract according to the trending lead time. In times of high demand, when a lead time was more than 18 hours, we opted not to use contract #3 because of the cost of each order (avg. job cost+ordering cost = $608.33) Micromanaging the contracts according to lead times was a temporary solution. This strategy allowed us to optimize revenue when we did not have the capital to purchase a machine. Purchasing Tuning and Stuffing Machines:

We originally wanted to purchase both a tuning...
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