Stanford University Graduate School of Business

rev. September 2002

Managing Customer Responsiveness at Littlefield Technologies
Background
Littlefield Technologies (LT) has developed another DSS product. The new product is manufactured using the same process as the product in the assignment “Capacity Management at Littlefield Technologies” — neither the process sequence nor the process time distributions at each tool have changed. The LT factory began production by investing most of its cash into capacity and inventory. Specifically, on day 0, the factory began operations with three stuffers, two testers, and one tuner, and a raw materials inventory of 9600 kits. This left the factory with zero cash on hand. Customer demand continues to be random, but the long-run average demand will not change over the product’ 486-day lifetime. At s the end of this lifetime, demand will end abruptly and factory operations will be terminated. At this point, all capacity and remaining inventory will be useless, and thus have no value. Management is currently quoting 7-day lead times, but management would like to charge the higher prices that customers would pay for dramatically shorter lead times. In addition, because the factory is essentially bootstrapping itself financially, management is worried about the possibility of bankruptcy. To minimize this threat, management policy dictates that new equipment cannot be purchased if the remaining cash balance would be insufficient to purchase at least one order quantity’ worth of raw materials. s

Operations Policies at Littlefield
LT uses a Reorder Point / Order Quantity raw material purchase policy. That is, raw kits are purchased as soon as the following three criteria are all met: (1) the inventory of raw kits is less than the reorder point, (2) there are no orders for raw kits currently outstanding, and (3) the factory