S11.4 J\'s Chemicals is considering two options for it\'s supplier portfolio. Op

Question

S11.4 J's Chemicals is considering two options for it's supplier portfolio. Option 1 uses 2 local suppliers. Each has a "unique-event" risk of 5%, and the probability of a "super-event" option that would disable both at the same time is to estimated at 1.5%. Option 2 uses 2 suppliers located in different countries. Each has a "unique-event" risk of 13%, and the probability of a "super-event" that would disable both at the same time is estimated to be 0.2%

a. What is the probability that both suppliers will be disrupted using Option1?

b. What is the probability that both suppliers will be disrupted using Option 2?

c. Which option would provide the lowest risk of a total shutdown?

Explanation / Answer

a) 0.015+0.05*0.05=0.0175

b)0.13*0.13+0.002=0.0189

c) is the Option 2

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