Scenario

You are to undertake a study to find out whether the company Sharp Outfits needs to delay the shipment of customer orders in the face of delivery uncertainty.

 

Case Study

Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in shipping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability that UPS will go on strike and impact Sharp Outfits’s shipments.

1. For which values of p, if any, does Sharp Outfits minimise its expected total cost by choosing to postpone shipping its customer orders via UPS?
2. Suppose now that, at the cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the company assesses that if there will be a strike, the information will predict a strike with probability 0.75, and if there will not be a strike, the information will predict no strike with probability 0.85. Provided that p = 0.15, what strategy should Sharp Outfits pursue to minimise its expected total cost?
3. Using the analysis from part b, find the EVSI when p = 0.15. Then use a data table to find EVI for p from 0.05 to 0.30 in increments of 0.05, and chart EVI versus p.
4. continuing part 5, calculate and interpret the EVPI when p = 0.15.

 

ASSIGNMENT TASKS

• Construct a spreadsheet model with decision tree.
• Develop a solution for Sharp Outfits, and write your recommendation in the form of a report.

 

ASSESSMENT ELEMENTS

• Spreadsheet.
• Report.

 

MARKING SCALE

• Spreadsheet                                                                      /20
• Report                                                                                  /10

• Total                 /30 marks

Scenario

You are to undertake a study to find out whether the company Sharp Outfits needs to delay the shipment of customer orders in the face of delivery uncertainty.

 

Case Study

Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in shipping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability that UPS will go on strike and impact Sharp Outfits’s shipments.

1. For which values of p, if any, does Sharp Outfits minimise its expected total cost by choosing to postpone shipping its customer orders via UPS?
2. Suppose now that, at the cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the company assesses that if there will be a strike, the information will predict a strike with probability 0.75, and if there will not be a strike, the information will predict no strike with probability 0.85. Provided that p = 0.15, what strategy should Sharp Outfits pursue to minimise its expected total cost?
3. Using the analysis from part b, find the EVSI when p = 0.15. Then use a data table to find EVI for p from 0.05 to 0.30 in increments of 0.05, and chart EVI versus p.
4. continuing part 5, calculate and interpret the EVPI when p = 0.15.

 

ASSIGNMENT TASKS

• Construct a spreadsheet model with decision tree.
• Develop a solution for Sharp Outfits, and write your recommendation in the form of a report.

 

ASSESSMENT ELEMENTS

• Spreadsheet.
• Report.

 

MARKING SCALE

• Spreadsheet                                                                      /20
• Report                                                                                  /10

• Total                 /30 marks