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

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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

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.

Strawberries Pay out Table

Purchase price = $3.00

Selling price = $5.00

Pay Out Table (Revenues)

 

Sell

Sell

Sell

Sell

Alternatives

10

11

12

13

Buy 10

$50

$50

$50

$50

Buy 11

$47

$55

$55

$55

Buy 12

$44

$52

$60

$60

Buy 13

$41

$49

$57

$65

Probablity

0.2

0.4

0.3

0.1

Decision Values (Probability Times Cell Revenue)

 

Sell

Sell

Sell

Sell

Decision

Alternatives

10

11

12

13

Costs

Buy 10

$10.00

$20.00

$15.00

$5.00

$50.00

Buy 11

$9.40

$22.00

$16.50

$5.50

$53.40

Buy 12

$8.80

$20.80

$18.00

$6.00

$53.60

Buy 13

$8.20

$19.60

$17.10

$6.50

$51.40

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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