REQUIREMENT #1 (25 points): Electronex is in the process of trying to improve it
ID: 342579 • Letter: R
Question
REQUIREMENT #1 (25 points): Electronex is in the process of trying to improve its global operations. The company needs to select a single supplier located at one of the major port cities around the world. The company is considering three suppliers, located at one of the following ports, Amsterdam, Bremerhaven, or Shanghai. Electronex believes that future economic conditions will decline, improve or remain the same. The following table summarizes the company's estimates for anticipated profit or loss (in millions of S) given the respective future economic conditions. PROFIT (S million) Port City ECONOMIC CONDITIONS Amsterdam Bremerhaven Shanghai Decline S50 $41 $42 Remain Same $51 S66 $54 Improve $73 $67 $78 a. (15 points) Sam tells you that the company's Chief Executive Officer (CEO) wants to make the best decision that avoids the regret associated with making this decision. Given the CEO's desire to avoid regret, which supplier location do you recommend? (SHOW YOUR WORK!) b. (10 points) Ms. Preston knows that even though usually an optimist, the CEO has recently become a bit more pessimistic about future worldwide economic conditions. Sam says that she would estimate the CEO's outlook for a pessimistic future economic outcome to be about 60%. Given this information, make a recommendation about the supplier location that best reflects the CEO's decision-making attitude. (SHOW YOUR WORK!) 2Explanation / Answer
Regret value in one category, say economy declining = Max Profitability Value in the economy decline - Profitability value. The Regret value for Amsterdam in a declining economy = $50-$50 = $0. Similarly, calculations are done and below table is populated.
The Max regret value for each city is in bold and since Bremerhaven has lowest regret value among the maximum regret value of three cities, we will choose Bremerhaven as the supplier location.
B) Considering pessimistic outcome, Economy declines probability = 60 %. Assume it is 20% for other two categories i.e. economy remains same or improves.
Profitability for Amsterdam = $50*0.6+ $51*0.2 + $73*0.2 = 54.8
Profitability for Bremerhaven = $41*0.6+ $66*0.2 + $67*0.2 = 51.6
Profitability for Shanghai= $42*0.6+ $54*0.2 + $78*0.2 = 51.2
We will choose Amsterdam as it has the maximum probable profitability.
Decline Remain Same Improve Regret Value Regret Value Regret Value Amsterdam $0 $15 $5 Bremerhaven $9 $0 $11 Shanghai $8 $12 $0Related Questions
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