7. Suisan Fish Company must decide whether to build a small or a large warehouse at a new location, Kona. Demand at Kona can be either low or high, with probabilities estimated to be 0.3 and 0.7, respectively. If a small warehouse is built, and demand is high, the fish manager may choose to maintain the current size or to expand. The net present value of profits is $223,000 if the company chooses not to expand. However, if the firm chooses to expand, there is a 40% chance that the net present value of the returns will be $330,000 and a 60% chance the estimated net present value of profits will be $210,000. If a small warehouse is built and demand is low, there is no reason to expand and the net present value of the profits is $220,000. However, if a large warehouse is built and the demand turns out to be low, the choice is to do nothing with a net present value of $30,000 or to stimulate demand through local advertising. The response to advertising can be either modest wvith a probability of 3 or favorable with a

7. Suisan Fish Company must decide whether to build a small or a large warehouse at a new location, Kona. Demand at Kona can be either low or high, with probabilities estimated to be 0.3 and 0.7, respectively. If a small warehouse is built, and demand is high, the fish manager may choose to maintain the current size or to expand. The net present value of profits is $223,000 if the company chooses not to expand. However, if the firm chooses to expand, there is a 40% chance that the net present value of the returns will be $330,000 and a 60% chance the estimated net present value of profits will be $210,000. If a small warehouse is built and demand is low, there is no reason to expand and the net present value of the profits is $220,000. However, if a large warehouse is built and the demand turns out to be low, the choice is to do nothing with a net present value of $30,000 or to stimulate demand through local advertising. The response to advertising can be either modest wvith a probability of 3 or favorable with a

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 46P

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Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. Ethical decisions that affect a buyers ethical perspective usually involve the organizational environment, cultural environment, personal environment, and industry environment. Analyze this scenario using these four variables.
Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. What should Sharon do in this situation?
Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. What does the Institute of Supply Management code of ethics say about financial conflicts of interest?
7. Suisan Fish Company must decide whether to build a small or a large warehouse at a new location, Kona. Demand at Kona can be either low or high, with probabilities estimated to be 0.4 and 0.6, respectively. If a small warehouse is built, and demand is high, the fish manager may choose to maintain the current size or to expand. The net present value of profits is $220,000 if the company chooses not to expand. However, if the firm chooses to expand, there is a 50% chance that the net present value of the returns will be $330,000 and a 50% chance the estimated net present value of profits will be $220,000. If a small warehouse is built and demand is low, there is no reason to expand and the net present value of the profits is $210,000. However, if a large warehouse is built and the demand turns out to be low, the choice is to do nothing with a net present value of $25,000 or to stimulate demand through local advertising. The response to advertising can be either modest with a…
Given is a decision payoff table. Alternatives Small Facility Medium Facility Large Facility Low 26 18 -7 Future Demand Moderate 21 31 30 High 18 22 42 a) The best decision under uncertainty using MAXIMAX is to select Blank 1 facility b) The best decision under uncertainty using MAXIMIN is to select Blank 2 facility c) The best decision under uncertainty using LAPLACE/EQUALITY LIKELY is to select Blank 3 facility d) If the probabilities for Future Demand when it is Low-0.35, Moderate -0.30, and High-0.35, the expected monetary value (EMV) for the large facility-Blank 4.
Given is a decision payoff table. Alternatives Low Future Demand Moderate High 91 130 102 81 Small Facility 111 Medium Facility 51 Large Facility -12 124 126 a) The best decision under uncertainty using MAXIMAX is to select Blank 1 facility b) The best decision under uncertainty using MAXIMIN is to select Blank 2 facility c) The best decision under uncertainty using LAPLACE/EQUALITY LIKELY is to select Blank 3 facility d) If the probabilities for Future Demand when it is Low = 0.35, Moderate = 0.30, and High = 0.35, the expected monetary value (EMV) for the large facility Blank 4. e) If the probabilities for Future Demand when it is Low = 0.35, Moderate = 0.30, and High = 0.35, the best decision under risk is to select Blank 5 facility.
A firm’s manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows:Make BuyAnnual fixed cost $150,000 None Variable cost/unit $ 60 $ 80 Annual volume (units) 12,000 12,000 a. Given these numbers, should the firm buy or make this item?b. There is a possibility that volume could change in the future. At what volume would the managerbe indifferent between making and buying?
2) A company is considering a plan to produce or buy/outsource a certain item used in the production of new type of cars. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows: Make Buy Annual fixed cost $150,000 None Variable cost/unit $60 $80 Annual volume 12,000 12,000 (units) a. Given these numbers, should the firm buy or make this item? b. There is a possibility that volume could change in the future. At what volume would the company be indifferent between making and buying?
Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.
Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.Draw a…
b. Joy who owns a boutique is considering three options for her facility next year. She can expand her current shop, move to a larger facility, or make no change. With a favourable market, the monthly payoff in Kenya shillings would be 56000 if she expands, 70000 if she moves, and 30000 if she does nothing. With an average market, her payoff will be 21000, 35000, and 10000 respectively. With an unfavourable market, her payoff will be -29000, -45000, and 5000 respectively. i) Prepare the payoff table ii) Using the following criteria advise joy on which decision alternative to take: 1. Maximax criterion 2. Maximin criterion 3. Hurwicz criterion with a = 0.6 4. LaPlace criterion 5. minmax regret criterion 2
The owners of Sweet-Tooth Bakery have determined thatthey need to expand their facility in order to meet their increaseddemand for baked goods. Th e decision is whether to expand nowwith a large facility or expand small with the possibility of havingto expand again in fi ve years.Th e owners have estimated the following chances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Profi ts for each alternative have been estimated as follows:• Large expansion has an estimated profi tability of either$80,000 or $50,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $40,000, assumingdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If the bakeryexpands at this point, the profi tability is to be $50,000.(a) Draw a decision tree showing the decisions, chanceevents, and their probabilities, as well as the profi tabilityof…