(Solution Manual) Operations and Supply Chain Management

Russell,Taylor, 10

Business

Solution Manual

10th Edition

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Solution Manual for Operations and Supply Chain Management, The downloadable file consists of 559 pages, and the total size of the file is 16.3 MB. Purchase now only for highly discounted price.

Author(s): Russell, Taylor

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1 - Introduction to Operations and Supply Chain Management Answers to Questions 1-1. The operations function involves organizing work, selecting processes, arranging layouts, locating facilities, designing jobs, measuring performance, controlling quality, sche duling work, managing inventory, and planning production. Operations interacts with marketing in product development, forecasting, production planning, and customer service. Operations and finance interact in capital budgeting, cost analysis, production an d inventory planning, and expansion and technology plans. Operations and human resources work together recruiting, training and evaluating workers, designing jobs and working with unions. IT and operations work together daily on e -commerce, enterprise reso urce planning and supply chain management systems. 1-2. a. Operations at a bank involves transferring funds, processing funds, providing checks, cashing checks, preparing monthly statements, reconciling statements, approving loans, loaning money, keeping track of loan payments, approving credit cards, and more. b. Operations at a retail store involves purchasing goods, stocking goods, selling goods, keeping track of inventory, scheduling workers, laying out the store, locating the store, forecasting demand , and more. c. Operations at a hospital involves preparing the rooms, scheduling doctors, nurses and other workers, processing paperwork, ordering supplies, caring for patients, maintaining the facility, laying out the facility, ensuring quality and more. d. Operations at a cable TV company involves taking orders, installing equipment, maintaining equipment, keeping the shows on the air, scheduling work, processing statements and payments, and more. 1-3. Inventions during the industrial revolution brought worke rs together under one roof in a factory setting where division of labor and interchangeable parts encouraged the formation of separate worker and management jobs. Ideas from the scientific management era made work more efficient. Human relations theorists emphasized the importance of the human element in operations management. The management science era saw many advances in quantitative techniques and their application. The quality revolution focused management on meeting customer expectations and emphasize d quality over quantity. The Internet brought numerous opportunities to do work faster and better. It also opened doors to new markets worldwide. Today’s successful companies compete worldwide for both market access and production resources. 1-4. Productivity is the efficiency with which inputs are transformed into outputs . It is calculated by div iding units of outpu t by units of input. Output can be represented by units or do llars of sales made, p roducts p roduced, customers served or calls answered. The most common input is labor hours , although a va riety of inputs can be used, such as labor cost, labor cost + ma chine cost + energy cost, and so forth. 1-5. Student answers will vary. 1-6. Student answers will vary. 1-7. Students can begin th is assignment by accessing Fortune’s homepage and referring to the Fortune 500 or Global 500 by industry. The leaders in each industry are listed and there is usually some discussion of industry concerns. Individual data on companies can be found at Hoover ’s website ( www.hoovers.com ). 1-8. Student answers will vary. 1-9. Student answers will vary. 1-10. Student answers will vary. Access www.worldbank.com . 1-11. The WTO is an international organization that works to establish and enforce rules of trade between nations. WTO agreements are ratified by the governing bodies of the nations involved . WTO’s dispute settlement process interprets agreements and rules on violations, the reby avoiding political or military conflict. The group promotes free trade and more recently, has helped developing nations enter the trade arena on more equitable grounds. Currently, there are 147 member nations. Membership is achieved by meeting certain environmental , human rights, and trade criteria, agreeing to abide by the rules of the organization, and being approved by two -thirds of the existing membership. See www.wto.org 1-12. Student answers will vary. Access www.executiveplanet.com 1-13. Student answers will vary. Access www.transparency.org 1-14. Student answers will vary. Access http://www.usdoj.gov/criminal/fraud/fcp a.html for bas ic information. 1-15. Students will find a variety of answers for this question. In general, it is easy to find mission or vision statements, but more difficult to find evidence of the mission or vision being applied. 1-16. Strategy formula tion consists of four basic steps: (1) Defining a primary task —what is the purpose of the firm? What is the firm in the business o f doing? (2) Assessing core competencies —what does a firm do better than anyone else? (3) Determining order winners and order qualifiers —what wins orders in the marketplace? What qualifies a product or service to be considered for purchase? (4) Positioning the firm — what one or two important things should the firm choose to concentrate on? How should the firm compete in the market place? Studen t answers will vary. Most start -ups try too much too soon. It’s often difficult to stick with what you do best. 1-17. Core competencies are the essential capabilities that create a firm’s sustainable competitive advantage. They have usually been built up over time and cannot be easily imitated. For example, First National Bank, one of our local banks, is known as a risk taker. Its core competence is its ability to size up the potential of investment opportunities. Through its familiarity with local busines ses and its experience in loan making, the bank has developed the ability to predict which loans are worth taking extra risks. Bonomo’s, a successful retail store, is known for having just the right item in stock for special occasions. The st ore stocks a v ariety of stylish women’s clothing, but not too much of each style. They specialize in knowing individual customers and even keep track of evening wear purchases so that no one else at a particular party will be wearing the same dress. Toyota emphasizes su perior quality at a price below its competitors with its Lexus line of automobiles. To establish a special reputation for quality over the lifetime of the car, the company set up separate sales and service facilities. When it is time for serv icing, Lexus o wners can have their vehicle picked up and delivered to their home or place of business. The car returns the same day, washed and vacuumed, often with a gift certificate inside for a night on the town complements of the dealer. 1-18. While t he answers to this question vary considerably, most students feel competent in the technical areas of their major, but uncomfortable with their communication skills (both oral and written) and their ability to make decisions. This opens the way for more pr oject -oriented assignments from the instructor. The question also helps students prepare for the inevitable interview question —what are your strengths and weaknesses? 1-19. Order qualifiers are characteristics of a product or service that qualify it to be considered fo r purchase by a customer. An order winner is the characteristic of a product or service that wins orders in the marketplace — the final factor in the purchasing decision. 1-20. a. Most companies approach quality in a defensive or reactive mode ; quality is c onfined to minimizing defect rates or conforming to design specifications. To compete on quality , companies must view quality as an opportunity to please the customer, not just as a way to avoid problems or to reduce rework costs. The manufac turer of Rolex watches competes on quality. b. Companies that compete on cost relentlessly pursue the elimination of all waste. The entire cost structure is examined for reduction potential, not just direct labor costs. High volume production and automatio n may or may n ot provide the most cost -effective alternative. Wal -Mart competes on cost. c. Flexibility includes the ability to produce a wide variety of products, to introduce new products and to modify existing products quickly, and, in general, to respo nd to customer needs. National Bicycle Industrial Company competes on flexibility. d. Competing on speed requires a new type of organization characterized by fast moves, fast adaptations, and tight linkages. Citicorp competes on speed. e. Competing on depe ndability requires a stable environment, adequate resources, high standards for performance, and tight control. Maytag competes on dependability. F. Competing on service requires closeness to the customer, availability of resources, attention to detail, and flexible ope rations. Ritz -Carlton competes on service. 1-21. Operations can play two important roles in corporate strategy: (1) it can provide support for the strategy of a firm (help with order qualifiers), and (2) it can serve as a firm’s distinctive competence (win orders). 1-22. Strategic decisions in operations and supply chain management involve products and services, processes and technology, capacity and facilities, human resources, quality, sourcing, and operating systems. 1-23. Policy deploym ent tries to f ocus everyone in an organization on common goals and priorities by translating corporate strategy into measurable objectives down through the various functions and levels of the organization. As a result, everyone in the organization should u nderstand the strategic plan, be able to derive several goals from the plan, and determine how each goal ties into their own daily activities. 1-24. The balanced scorecard examines a firm’s performance in four critical areas – its finances, customers, processes and cap acity for learning and growing. Although operational excellence is important in all four areas, the tools in operations are most closely associated with process. 1-25. Student answers will vary. 1-26. Student answers will vary. The balanced scorecard wor ksheet in Table 2.1 is helpful. Finances might refer to future income, customers to potential employers who are interested in both grades and experience, processes to how students will raise their grades and gain experience, and learning and growing to dev eloping skills in several areas. Solutions to Problems 1-1. The Blacksburg store is the most productive. Store Annandale Blacksburg Charlottesville Danville Sales volume $40,000 $12,000 $60,000 $25,000 Labor hours 250 60 500 200 Producti vity $160 $200 $120 $125 1-2. a. Danville is the most productive. b. Based on productivity, the Annandale store should be closed. Other factors to consider include total revenue, potential for growth, and options for reducing costs. Annandale Blacksbur g Charlottesvil le Danville Sales volume $40,000 $12,000 $60,000 $25,000 Labor hours 250 60 500 200 Labor cost/hr $15.00 $10.00 $9.00 $8.50 Rent $2800 $1200 $2000 $800 Productivity $6 $7 $9 $10 1-2. a. By number, Jim was more productive last year. Last yr This yr Hours fishing 4 6 Bass caught 12 15 Bass/hr 3 2.5 b. By weight, Jim was more productive this year. Last yr This yr Hours fishing 4 6 Bass caught 12 15 Average weight 20 25 Lbs/hr 60 62.5 1-4. Productivity could be measured by total account dollars per hour worked, new account dollars per hour worked or e xisting account dollars per hour worked. Bates is the most productive based on total output. Albert and Duong have the newest accounts, and thus the greater potential returns in the future. H owever, Duong cannot work many more hours a week and Bates is onl y working half time. Bates has the potential to sell more if he works more hours. Agents Albert Bates Cressey Duong New accounts $100,000 $40,000 $80,000 $200,000 Existing accounts $40,000 $40,000 $150,000 $100,000 Labor hours 40 20 60 80 Total $/hr $3,500.00 $4,000.00 $3,833.33 $3,750.00 $ New accts/hr $2,500.00 $2,000.00 $1,333.33 $2,500.00 $ Existing accts/hr $1,000.00 $2,000.00 $2,500.00 $1,250.00 1-5. The U.S. is the most produc tive. Labor Hours Units of Output Productivity U.S. 89.5 136 1.52 Germany 83.6 100 1.20 Japan 72.7 102 1.40 1-6. Omar should probably close the plant in Guadalajara because its multifactor productivity is the lowest, its labor productivity is the seco nd lowest, and its output is the least of the four plants. Units ( in 000’s) Cinncinnati Frankfurt Guadalajara Bejiing Finished goods 10,000 12,000 5,000 8,000 Work -in-process 1,000 2,200 3,000 6,000 Costs (in 000’s) Labor costs $3,500 $4,200 $2,500 $800 Material costs $3,500 $3,000 $2,000 $2,500 Energy costs $1,000 $1,500 $1,200 $800 Transportation costs $250 $2,500 $2,000 $5,000 Overhead costs $1,200 $3,000 $2,500 $500 Labor productivity 3.14 3.38 3.20 17.50 Total productivity 1.16 1.00 0.78 1.46 1-7. Henry is the most productive in terms of rushing yar ds and touchdowns per carry. However, Fournette has the highest number of rushing yards and touchdowns. Using “carries” as the input variable skews the results. Productivity can be measured in many different ways. Make sure it is expressed in a manner that is useful to you or your customer. Candidates Henry McCaffrey Fournette Rushing yards 2,110 3,623 6,925 # Carries 105 875 1,186 # Touchdowns 15 20 70 Yards/carry 20.10 4.14 5.84 Touchdowns/carry 0.14 0.02 0.06 1-8. Productivity decreases from wee k to week. Installation 1 2 3 Square Yards 1,225 1,435 2,500 # workers 4 3 5 # hours 3 5 6 Square yds/hr 102.08 95.67 83.33 1-9. Center 1 2 3 3c. Pieces processed 1,000 2,000 3,000 5,000 Workers/hr 10 5 2 2 Hourly wage rate $5.50 $10 $12 $12 Overh ead/hr $10 $25 $50 $80 Multifactor productivity 15.38 26.67 40.54 48.08 a. Work center # 3 is the most productive. b. With a 10% raise in center 1, productivity goes down to 14.18 piece s per dollar spent. c. With new equipment in center 3, productivity g oes up to 48 pieces. Install the new equipment. 1-10. Material productivity is stable over the 4 weeks. Labor productivity increases in week 2 and decreases in weeks 3 and 4. Week 1 2 3 4 Units of output 2,000 4,000 5,000 7,000 # workers 4 4 5 6 Hours per week 40 48 56 70 Labor cost per hour $10 $10 $10 $10 Material (lbs.) 286 570 720 1,000 Material cost per lb. $4 $4 $4 $4 Labor productivity 1.25 2.08 1.79 1.67 Material product ivity 1.75 1.75 1.74 1.75 Multifactor productivity 0.73 0.95 0.88 0.85 1-11. John is the most productive. Jake Josh Jennifer John # ads sold 100 50 200 35 # hours spent 40 15 85 10 Output/hr 2.50 3.33 2.35 3.50 1-12. Choose Cold Case. Alaskan Seal Brr Frost Cold Case Deep Freeze Purchase cost $3,270 $4,000 $4,452 $5,450 Daily energy consumption (kwh) 3.61 3.88 6.68 29.07 Cost per kwh $0.10 $0.10 $0.10 $0.10 Daily energy cost $0.36 $0.39 $0.67 $2.91 Daily purchase cost $2.99 $3.65 $4.07 $4.98 Total cost $3.35 $4.04 $4.73 $7.88 Volume (cu ft) 25 35 49 79 Productivity (cu ft/$) 7.47 8.66 10.35 10.02 Cost/cu ft $0.13 $0.12 $0.10 $0.10 1-13. a. Productivity of current process = 100/10 = 10 b. Productivity of proposed proc ess = 200/15 = 13.33 c. Multifactor productivity = Output / ($ mater ial + $ hours) = 100 / [(1000*6.80) + (10*25)] = 0.0142 lbs. per dollar d. Multifactor productivity = Output / ($ material + $ hours) = 200 / [(1800*6.80) + (15*25)] = 0.0159 l bs. per dollar e. Choose the new process. 1-14. a. Labor productiv ity = Output/ Labor hrs = 60 jeans /(3 workers *8 hours ) = 2.5 pairs of jeans per hr b. Manufacturing cost = (Labor cost + Material cost + Energ y cost + Machine cost ) per pair of jeans = [(3 workers * 8 hrs * $20) + (60 * $10) + (3 machines * 8 hrs*$1) + (3 machines *8 hrs *$10)]/60 = 1344 /60 = $ 22.40 Since the problem provides us with the resources to produc e 60 pairs of jeans, we ca lculate the cost of producing 60 pai rs and divide the r esult by 6 0 to get the per unit manufac turing cost. c. Multifactor productivity = Output / (Labor cost + Material cost + Energ y cost + Machine cost ) = 60/ [(3 workers * 8 hrs * $20) + (60 * $10) + (3 machines * 8 hrs*$1) + (3 machines *8 hrs *$10)] = 60/1344 = 0.0446 pairs of jeans per $ input Multifactor productivity is the number of jeans that can be produced per dollar of resource used . Note, t he reciprocal of multifactor productivity is the cost to manufacture one pair of jeans, $22.40. 1-15. The most productive countries are Taiwan, China, Poland, Czech Republic and Singapore. The least productive countries are Norw ay, Germany, Belgium, Sweden and Switzerland. See full table below . Country Productivity per hr labor* Hourly compensation** Productivity per $ labor Turkey 42 6.09 6.90 Mexico 21 3.91 5.37 India 9 1.69 5.33 Taiwan 52 9.82 5.30 Philippines 10 2.06 4.85 Hungary 38 8.60 4.42 Czech Republic 40 10.71 3.73 China 15 4.11 3.65 Brazil 18 7.98 2.26 Norway 96 48.62 1.97 United Kingdom 54 28.41 1.90 United States 72 39.03 1.84 Japan 47 26.46 1.78 France 67 37.72 1.78 Italy 53 32.49 1.63 Germany 70 43.18 1.62 South Korea 37 22.98 1.61 Argentina 27 16.77 1.61 Sweden 65 41.68 1.56 Switzerlan d 65 60.36 1.08 * from Figure 1.10 **from Figure 1.6 CASE SOLUTION 1. 1: Visualize This 1. It is difficult to follow the four steps of strategy formulation for this case. Students will be able to easily identify VT’s core competency but will struggle w ith its primary task, and without a product, it’s impossible to determine an order winner and order qualifiers. “ Developing the next generation of visualization tools” is probably not a marketable task. Students will come up with a variety of ideas from their Int ernet search. 2. Student answers will vary depending on how the primary task is derived in question 1. 3. That’s the crux of the problem for this case. Isaac needs to find a way to keep his business going to obtain the capital to pursue his dream. Great for cl ass discussion. 4. (1) and (3) are more in keeping with VT’s earlier projects but require more hardware and do not promise future business. (2) is the most time -consuming, least challenging, but most sustainable. (4) and (5) are the most lucrative but do not advance VT’s knowledge of the field. 5. The selection of projects should reinforce the strategy determin ed by the student. This case is based on an actual situation. The company chose projects (1) and (3). The museum job consumed so much time and resourc es that the company had to turn down the bank training job. Without a “product” and no immediate repeat bu siness, the company folded and the owner went back to academe. A student took on project (5), became quite successful and now has operations in three states. CASE SOLUTION 1. 2: Whither an MBA at Strutledge? 1. The board of Regents should look at the proposal carefully and identify first what they are trying to achieve with this new program. If the program fits within their mission, and if they have the re sources to pursue it, they need to assess the likelihood of their success or failure. It doesn’t appear th at the board has sufficient information or insight to make the decision. A lot of questions remain. The focus of the program (i.e., interdiscip linary, problem solving, etc.) doesn’t seem like much of a focus at all. The desire to “try anything” to get more students is troublesome. A new program that Strutledge can’t support would damage their reputation. Strutledge needs to gather more informatio n befor e a decision can be made. 2. Strutledge should go through the process of identifying its primary task. This would include the type of students it wishes to serve and their future role in society (i.e., community, state, regional, national, global). A clear a ssessment of Strutledge’s core competence is also needed. What special resources does the college have? Wh at is it best known for? How does it compare to other institutions of similar size and mission? After those issues have been settled, the coll ege nee ds to find out what its customers (i.e., students) look for when deciding where to go to school. What are some basic requirements that Strutledge should meet (i.e., order qualifiers)? What factor prompts the final determination of which school to at tend (i .e., order winner)? If, as is hinted in the case, the ability to find employment upon graduation is import ant to prospective students, then the college should gather information from potential employers about their needs. It may very well be that an MBA pr ogram is needed in the area, but this needs to be determined from data. Only after the determination has b een made, that the area needs another MBA program, should Strutledge explore the possibility of providing it. If the college concludes that it has the skills and resources necessary to pursue the task, then it should try to position itself properly in the market and find a special niche for its particular MBA program. CASE SOLUTION 1.3 – Weighing Options at the Weight Club A Balanced Scorecard for th e Weight Club Dimension Objectives Key Performance Indicator Goal Revenue Generate revenue for first- class facility % increase in revenue 30% Growth Attract new customers % increase in customers 25% Quality Meet or exceed cu stomer needs % customers satisfied 100% Retention Build sustainable customer base % membership renewals 75% Fitness Incr. participation in exercise classes # exercise classes/week 12 Increase use of personal trainers # client hours/week 100 Client services Enhance client experience % participation in customer orientation 75% # massage appointmen ts/week 200 Facilitate use of services Time required for check -in 1 min Hours of child care/week 90% Equipment maintenance Maintain eq uipment in top working condition % fully operational 95% % on regular maintenance schedule 60% Program development Develop professional staff % new classes 25 # innovative suggestions 30 Facility development Provide first -class facil ities and equipment % equipment new or updated 100% Months until facility expanded/ renovated 6 Orga nizational development Develop management and administrative skills # persons on Board of Directors 6 # full -time managers 3 Supplement 1 Operational Decision -Making Tools: Decision Analysis S1-1. a. Minimin: South Korea 15.2 China 17.6 Taiwan 14.9 Poland 13.8 Mexico 12.5 minimum  Select Mexico b. Minimax: South Korea 21.7 China 19.0 minimum  Taiwan 19.2 Poland 22.5 Mexico 25.0 Select China c. Hurwicz ( )0.40 := South Korea: ( ) ( ) 15.2 0.40 21.7 0.60 19.10 += China: ( ) ( ) 17.6 0.40 19.0 0.60 18.44 += Taiwan: ( ) ( ) 14.9 0.40 19.2 0.60 17.48 minimum + =  Poland: ( ) ( ) 13.8 0.40 22.5 0.60 19.02 += Mexico: ( ) ( ) 12.5 0.40 25.0 0.60 20.0 += Select Taiwan d. Equal likelihood: South Korea: () () () 21.7 0.33 19.1 0.33 15.2 0.33 18.48 + + = China: () () () 19.0 0.33 18.5 0.33 17.6 0.33 18.18 + + = Taiwan: () () () 19.2 0.33 17.1 0.33 14.9 0.33 16.90 minimum + + =  Poland: () () () 22.5 0.33 16.8 0.33 13.8 0.33 17.52 + + = Mexico : () () () 25.0 0.33 21.2 0.33 12.5 0.33 19.37 + + = Select Taiwan S1-2. ( ) () () () EV South Korea 21.7 .30 19.1 .40 15.2 .30 18.71 = + + = ( ) () () () EV China 19.0 .30 18.5 .40 17.6 .30 18.38 = + + = ( ) () () () EV Taiwan 19.2 .30 17.1 .40 14.9 .30 17.07 minimu m = + + =  ( ) () () () EV Poland 22.5 .30 16.8 .40 13.8 .30 17.61 = + + = ( ) () () () EV Mexico 25.0 .30 21.2 .40 12.5 .30 19.73 = + + = Select Taiwan Expected value of perfect () () () information 19 .30 16.8 .40 12.5 .30 16.17 = + + = EVPI 16.17 17.07 $ 0.9 million = − = − The EVPI is the maximum amount the cost of the facility could be reduced (.9 million) if perfect information can be obtained. S1-3. a. Maximax criteria: Office building 4.5 maximum Parking lot 2.4 Warehouse 1.7 Shopping mall 3.6 Condominiums 3.2 Select office building b. Maximin criteria: Office building 0.5 Parking lot 1.5 maximum Warehouse 1.0 Shopping mall 0.7 Condominiums 0.6 Select parking lot c. Equal likelihood: Office building: () () () 0.5 0.33 1.7 0.33 4.5 0.33 2.21 maximum + + =  Parking lot: () () () 1.5 0.33 1.9 0.33 2.4 0.33 1.91 + + = Warehouse: () () () 1.7 0.33 1.4 0.33 1.0 0.33 1.35 + + = Shopping mall: () () () 0.7 0.33 2.4 0.33 3.6 0.33 2.21 maximum + + =  Condominiums: () () () 3.2 0.33 1.5 0.33 0.6 0.33 1.75 + + = Select office build ing or shopping mall d. Hurwicz criteria ( )0.3 := Office building: () () 4.5 0.3 0.5 0.7 1.70 += Parking lot: () () 2.4 0.3 1.5 0.7 1.77 maximum + =  Warehouse: () () 1.7 0.3 1.0 0.7 1.21 += Shopping mall: () () 3.6 0.3 0.7 0.7 1.57 += Condomi niums: () () 3.2 0.3 0.6 0.7 1.38 += Select parking lot S1-4. a) ( )() () () EV Office building .5 .50 1.7 .40 4.5 .10 1.38 = + + = ( ) () () () EV Parking lot 1.5 .50 1.9 .40 2.4 .10 1.75 = + + = ( ) () () () EV Warehouse 1.7 .50 1.4 .40 1.0 .10 1.51 = + + = ( ) () () () EV Shopping mall 0.7 .50 2.4 .40 3.6 .10 1.67 = + + = ( ) () () () EV Condominiums 3.2 .50 1.5 .40 .06 .10 2.26 maxi mum = + + =  Select Condominium project b) EVPI = Ex pected value of perfect information –expected value without perfect information = 3.01 –2.26 = $0.75 million S1-5. a. Maximax: Risk fund, maximax payoff = $167,000 b. Maximin: Savings bond maximin payoff = $30,000 c. Equal likelihood: Bond fund, maximum payoff = $35,000 S1-6. a. Best decision, given probabilities: Bond fund, maximum payoff = $35,000 b. Expected value given perfect information = (5*0.1) + (4*0.2) + (4.2*0.4) + (9.3*0.2) + (16.7*0.1) = $6.51 EVPI = $6.51 - $3.50 = $3.01 or $30,1 00 S1-7. Since the payoff table includes “costs,” the decision criteria must be reversed. a. Minimin: Philippines, minimum cost = $170,000 b. Minimax: Brazil, minimum cost = $570,000 c. Equal likelihood: Philippines, minimum cost = $399,000 d. Minimax regret: Phi lippines, minimum regret = $70,000 S1- 8 a. EV (China) = 5.328 EV (India) = 5.375 EV (Philippines) = 5.218 EV (Brazil) = 5.178 Select EV (Mexico) = 5.202 b. EV given perfect information = $(1.7) (0.09) + (3.8) (0.27) + (5.4)(0.64) = $4.635 EVPI = $5.178 – 4.365 = $0.813 or $813,000 S1– 9. Since this payoff table includes “losses,” the decision criteria must be reversed. a. Minimin: Thailand, minimum loss = $3 million b. Minimax: India, minimum l oss = $14 million c. Equal likelihood: India, minimum loss = $8.91 million d. Minimax regret: Philippines, minimum regret = $2 million S1-10. EV (China) = $10.91 EV (India) = 7.21 Select EV (Thailand) = 9.77 EV (Philippines) = 7.54 S1-11. a. Prod uct Expected Value Widget () () () 160,000 0.2 90,000 0.5 50,000 0.3 $62,000 + − = Hummer () () () 70,000 0.2 40,000 0.5 20,000 0.3 $40,000 + + = Nimnot () () () 45,000 0.2 35,000 0.5 30,000 0.3 $35,500 + + = The best option is to introduce the widget. b. EV given perfect information: () () () 160,000 0.2 90,000 0.5 30,000 0.3 $86,000. + + = EV without per fect information: Widget at $62,000. Value of perfect information: $86,000 $62,000 $24,000 −= The company would consider this a maximum; since perfect information is rare, it would probably pay less than $24,000. c. Maximax: Introduce widget, maxima x payoff $160,000 = Maximin: Introduce nimnot, maximin payoff $30,000. = Minimax regret: Introduce widget, Minimax regret $80,000 = Equal likelihood: Introduce widget, maximum payoff $66,000 = S1-12. a. Maxi max: Major physical revision, maximum payoff = $972,000 b. Maximin: Paperback, maximum payoff = $68,000 c. Equal likelihood: Major content revision, maximum payoff = $419,430 d. Hurwicz: Major content revision, maximum payoff = $273,900 S1-13. Public ation Decision Expected Value Paperback $216,290 Similar revision 386,340 Major content revision 468,780 Major physical revision 405,970 Best decision = major content revision Overall “best” decision appears to be a “major content revision” EVPI = (.23) (68,000) + (.46)(515,000) + (.31)(972,000) − 468,780 = $85,080 This is the maximum amount Wiley would pay an “expert” for additional information about the future competitive market. S1-14. a. Maximax: Singapore, maximum payoff = $71 million b. Maximi n: Kaohsiung, maximum payoff = -$15 million c. Equal likelihood: Kaohsiung, maximum payoff = $28.05 million d. Hurwicz: Singapore, maximum payoff = $37.8 million e. Minimax regret: Singapore, minimum regret = $9 million S1-15. Expected value Port Expe cted Value Hong Kong $22.99 Singapore 34.52 Shanghai 24.54 Busan 28.30 Kaohsiung 33.66 a. Best decision = Singapore b. Singapore appears to be the best “overall” decision. S1-16. a. Expected value Lease Decision Expected Value 1 – year $65,980 2 – year 103,010 3 – year 133,810 4 – year 154,300 5 – year 114,210 b. EVPI = (.17) (1,228,000) + (.34)(516,000) + (.49)( −551,000) − 154,300 = $237,740 This is the maximum amount the restaurant owner would pay an energy “expert” for additional inform ation about future energy prices. S1-17. a. Maximax: Food court, maximum payoff = $87,000 b. Maximin: Child care center, maximum payoff = $17,000 c. Hurwicz: Lockers and showers, maximum payoff = $32,250 d. Equal likelihood: Lockers and showers, maximu m payoff = $34,980 S1-18. Service Facility Expected Value Child care center $30,560 Swimming pool 7,610 Lockers and showers 44,150 Food court 15,440 Spa 20,580 Best decision = Lockers and showers S1-19. a. Payoff table: Demand 20 0.10 21 0.20 22 0.30 23 0.30 24 0.10 Stock (lb) 20 20.00 20.00 20.00 20.00 20.00 21 18.50 21.00 21.00 21.00 21.00 22 17.00 19.50 22.00 22.00 22.00 23 15.50 18.00 20.50 23.00 23.00 24 14.00 16.50 19.00 21.50 24.00 () EV 20 $20 = () () () () () () EV 21 18.50 0.1 21 0.2 21 0.3 21 0.3 21 0.1 $20.75 = + + + + = () () () () () () EV 22 17 0.1 19.50 0.2 22 0.3 22 0.3 22 0.1 $21.00 = + + + + = () () () () () () EV 23 15.50 0.1 18 0.2 20.50 0.3 23 0.3 23 0.1 = + + + + $20.50= () () () () () () EV 24 14 0.1 16.50 0.2 19 0.3 21.50 0.3 24 0.1 = + + + + $19.25= Order 22 lb of apples for a profit of $21.00. b. Maximax: Stock 24 lb for a maximax profit of $24.00. Maximin: Stock 20 lb for a maximin profit of $20.00. S1-20. a. Payoff table: Demand Stock (lb) (boxes) 25 0.10 26 0.15 27 0.30 28 0.20 29 0.15 30 0.10 25 50 50 50 50 50 50 26 49 52 52 52 52 52 27 48 51 54 54 54 54 28 47 50 53 56 56 56 29 46 49 52 55 58 58 30 45 48 51 54 57 60 () () () () () () () EV 25 50 0.1 50 0.15 50 0.3 50 0.2 50 0.15 50 0.1 = + + + + + $50.00= () () () () () () () EV 26 49 0.1 52 0.15 52 0.3 52 0.2 52 0.15 52 0.1 = + + + + + $51.70= () () () () () () () EV 27 48 0.1 51 0.15 54 0.3 54 0.2 54 0.15 54 0.1 = + + + + + $52.95= () () () () () () () EV 28 47 0.1 50 0.15 53 0.3 56 0.2 56 0.15 56 0.1 = + + + + + $53.30= () () () () () () () EV 29 46 0.1 49 0.15 52 0.3 55 0.2 58 0.15 58 0.1 = + + + + + $53.05= () () () () () () () EV 30 45 0.1 48 0.15 51 0.3 54 0.2 57 0.15 60 0.1 = + + + + + $52.35= Best decision: Stock 28 boxes, for a profit of $53.30. b. Expected value under uncertainty: ( ) () () ( ) () () EV 500 0.10 52 0.15 54 0.30 56 0.20 58 0.15 60 0.10 $ 54.90 = + + + + + = EVPI $54.90 $53.30 $1.60 =−= S1-21. a) Stock 25, maximum of minimum payoffs $50 = b) Stock 30, maximum of maximum payoffs $60 = c) () () 25 : 50 .4 50 .6 50; += () () 26 : 52 .4 49 .6 50.2; += () () 27 : 54 .4 48 .6 50.4; += () () 28 : 56 .4 47 .6 50.6; += () () 29 : 58 .4 46 .6 50.8; += () () 30 : 60 .4 45 .6 51; += stock 30 boxes. d) Stock 28 or 29 boxes; minimum regret $4. = S1-22. Since the payoff table includes “costs,” the decision criteria must be reversed. a. Minimin: Manila , minimum cost = $170,000 b. Minimax: Veracruz, minimum cost = $570,000 c. Equal likelihood: Manila, minimum cost = $403,000 d. Minimax regret: Veracruz, minimum regret = $70,000 S1-23. EV (Shanghai) = 5.328 EV (Mumbai) = 5.375 EV (Ma nila) = 5.218 EV (Santos) = 5.178 Select EV (Veracruz) = 5.202 S1-24. EV given perfect information = $(1.7) (0.09) + (3.8) (0.27) + (5.4) (0.64) = $4.635 EVPI = $5.178 – 4.635 = $0.543 or $543,000 S1-25. ( ) () () EV press 40,000 .4 8,000 .6 $11,200; = − = ( ) () () EV lathe 20,000 .4 4,000 .6 $10,400; = + = ( ) () () EV grinder 12,000 .4 10,000 .6 $10,800; = + = Purchase press. S1-26. S1-27. a. Maximax = Real Estate b. Maximin = Nursing c. Equal Likelihood: select Real Estate Graphic design = $170,000 Nursing = $187,500 Real E state = $202,500 Medical Technology = $195,000 Culinary technology = $170,000 Computer information technology = $186,250 d. Hurwicz (alpha = 0.25): select Nursing Graphic design = $141,250 Nursing = $161,250 Real Estate = $ 158,750 Medical Technology = $157,500 Culinary technology = $136,250 Computer information technology = $158,750 S1-28. EV (Graphic design) = $164,250 EV (Nursing) = $183,500 EV (Real Estate ) = $174,400 EV (Medical Technology) = $187,500 EV (Culinary technology) = $149,250 EV (Computer information technology) = $174,750 S1-29. a. Maximax = Hong Kong b. Maximin = Pusan c. Equal likelihood: Shanghai = $0.44 billion Singapore = $0.37 billion Pusan = $0.43 billion Kaoshiung = $0.41 billion Hong Kong = $0.4 7 billion d. Hurwi cz (alpha = .55): Shanghai = $0. 47 billion Singapore = $0. 41 billion Pusan = $0. 46 billion Kaoshiung = $0. 54 billion Hong Kong = $0. 77 billion S1-30. EV(Shanghai) = $0.608 billion EV(Singapore) = $0.606 billion EV(Pusan) = $0. 502 billion EV(Kaoshiung) = $0.487 billion EV (Hong Kong ) = $0. 724 billion S1-31. ( ) () () () () () () () EV snow shoveler $30 .12 60 .19 90 .24 120 .22 150 .13 180 .08 210 .02 = + + + + + + $101.10= The cost of the snow blower ($575) is much more than the annual cost of the snow shoveler, thus on the basis of one year the snow shoveler sho uld not be purchased. However, the snow blower could be used for an extended period of time such that after approximately 6 years the cost of the snow blower would be recouped. Thus, the decision hinges on whether or not the decision maker thinks 6 years i s too long to wait to recoup the cost of the snow blower. S1-32. Since cost of installation ($900,000) is greater than expected value of not installing ($552,000), do not install an emergency power generator . S1-33. Select strategy 3; Change oil regularly; EV = $98.80 S1-34. Select Strategy 4; Change oil and sample; EV = $716.40 S1-35. a. b. ()()() .98 9.2 1.5 1 .02 1.5 3.810 xx + − + =   .98 7.7 1.5 .030 3.810 x+ + = 7.546 1.47 .030 3.810 x+ + = 7.546 2.31 x= .306 probability of winning in overtimex= S1-36. S1-37. The following table includes the medical costs for all the final nodes in the decision tree. Expense Plan 1 Plan 2 Plan 3 100 481 160 318 500 884 560 438 1,500 984 1,290 738 3,000 1,134 1,440 1,188 5,000 1,334 1,640 1,788 10,000 1,834 2,140 3,288 ()E 1 954 = ()E 2 976.5 = ()E 3 810 = Select plan 3 S1-38. S1-39.