Sheet1
| Operations Strategy MGMT 707 | ||||||||
| Decision Tree Solution | ||||||||
| Ellisson Seafood Transportation Cost. | ||||||||
| # of | $ per . | Annual | Cost per | Total | Probability | Decision | Weighted | |
| Shipments | Shipment | Cost | year | Costs | Cost | Cost | ||
| Common | 30 | $750 | $0 | $22,500 | $22,500 | 25% | $5,625 | |
| 50 | $37,500 | $37,500 | 60% | $22,500 | $37,125 | |||
| 80 | $60,000 | $60,000 | 15% | $9,000 | ||||
| Contract | 30 | $300 | $5,000 | $9,000 | $14,000 | 25% | $3,500 | |
| 50 | $15,000 | $20,000 | 60% | $12,000 | $19,850 | |||
| 80 | $24,000 | $29,000 | 15% | $4,350 | ||||
| Lease | 30 | $50 | $21,000 | $1,500 | $22,500 | 25% | $5,625 | |
| 50 | $2,500 | $23,500 | 60% | $14,100 | $23,475 | |||
| 80 | $4,000 | $25,000 | 15% | $3,750 |
Sheet2
Sheet3
Contract303030505050808080(25%) $22,500 $5,625(25%) $14,000 $3,500(25%) $22,500 $5,625(60%) $37,500 $22,500(60%) $20,000 $3,500(60%) $23,000 $14,000(15%) $60,000 $9.000(15%) $29,000 $4,350
(15%) $25,000$3,750
$37,125$19,850
$23,475
Operations Management BUSS 232Decision Tree Solution Sec. AEllisson Seafood Transportation Cost
Contract303030505050808080(25%) $22,500 $5,625(25%) $14,000 $3,500(25%) $22,500 $5,625(60%) $37,500 $22,500(60%) $20,000 $3,500(60%) $23,000 $14,000(15%) $60,000 $9.000(15%) $29,000 $4,350
(15%) $25,000$3,750
$37,125$19,850$23,475Operations Management BUSS 232Decision Tree Solution Sec. AEllisson Seafood Transportation Cost
Ellisson Seafood Company
DECISION TREE Assignment
Ellisson Seafood Company ships fresh seafood to customers in the local area. The logistics manager has developed 3 alternatives to ship the seafood.
Part A
#1 Each time a shipment is ready, call a common carrier. While there is no fixed costs the variable cost per shipment is $750.
#2 Enter into a contract with a common carrier. While the variable cost would be $300 per shipment, the fixed cost would be $5,000 per year.
#3 Lease their own refrigerated trucks. The fixed cost would be $21,000 per year and the variable costs would be $50 per shipment.
Now Ellisson does not know what the number of shipment will be per year. But a review of past years history provided the following information:
Part B
Ellisson Seafood does not know how many shipments there will be per year. However an analysis of the previous years’ data revealed the following:
|
Demand |
Shipments per year |
Probability |
|
Low |
30 |
25% |
|
Medium |
50 |
60% |
|
High |
80 |
15% |
Question: Given the costs and probability, which option should Ellisson select?
A payout table and a decision tree are required for this assignment.
Hint: Decision tree has 3 main branches each with 3 branches of their own. The payout table will have 9 columns; Carrier options, # of shipments, cost per shipment, fixed annual cost, per shipment cost total per year, combined total costs, % probability, decision cost and final weighted costs.
MGMT 707 OPERATIONS MANAGEMENT
DECISION TREE.STRAWBERRIES.PROBLEM.SOLUTION.MGMT.707
“How many cases of strawberries to buy?”
Jean Clark is the manager of produce for Midtown Saveway, a small regional chain of supermarkets. She now needs to replenish her supply of strawberries for the upcoming weekend. Her regular supplier can provide as many cases as she needs. However, this time of the year, strawberries are very ripe, she will need to sell them all in one day. Those cases unsold will have to be discarded. Jean estimates that at the per store level they could either sell 10, 11, 12 or 13 cases tomorrow. The purchase price is $3.00 per case and the selling price is $5.00 per case. She needs to make the decision today.
Checking the records of daily sales Jean estimates that there is a 20% chance of selling 10 cases, 40% chance of selling 11 cases, 30% chance of selling 12 cases and a 10% of selling 13 cases.
Prepare a payout table and a decision tree.
Recommend to Jean how many cases she should order per store.
Sell
Sell
Sell
Sell
Alternatives
10
11
12
13
Buy 10
$20
$20
$20
$20
Buy 11
$17
$22
$22
$22
Buy 12
$14
$19
$24
$24
Buy 13
$11
$16
$21
$26
Probablity
0.2
0.4
0.3
0.1
Sell
Sell
Sell
Sell
Decision
Alternatives
10
11
12
13
Costs
Buy 10
$4.00
$8.00
$6.00
$2.00
$20.00
Buy 11
$3.40
$8.80
$6.60
$2.20
$21.00
Buy 12
$2.80
$7.60
$7.20
$2.40
$20.00
Buy 13
$2.20
$6.40
$6.30
$2.60
$17.50
Decision Values (Probability Times Profits)
Pay Out Table (Profits)
Purchase price = $3.00
Selling price = $5.00
Strawberries Pay out Table
Profit Based
Sell 11Sell 11Sell 1320%30%40%40%40%10%PROFIT$50$50$50$50$47$55$55$55$44$52$60$60$41$49$57$65DECISION PROFIT$10$20$15$5WEIGHTED COST$50.00$9.40$22.00$16.50$5.50$53.40$8.80$21.80$18.00$6.00$53.60**$8.20$19.60$17.10$6.50$51.40
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