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Book/movie review
22/08/2022
Solved Example Attached
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.
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