Bloom's Jeans is searching for new suppliers, and DebbieBloom, the owner, has narrowed her choices to two sets. Debbie isvery concerned about supply disruptions, so she has chosen to usethree suppliers no matter what. For option l, the suppliers are wellestablished and located in the same country. Debbie calculates the" unique-event" risk for each of them to be 4%. She estimates theprobability of a nationwide event that would knock out all three suppliersto be 2.5%. For option 2, the suppliers are newer but located inthree different countries. Debbie calculates the " unique-event" riskfor each of them to be 20%. She estimates the "super-event" probabilitythat would knock out all three of these suppliers to be 0.4%.Purchasing and transportation costs would be $1 ,000,000 per yearusing option 1 and $1,0 I 0,000 per year using option 2. A total disruptionwould create an annualized loss of$500,000.a) What is the probability that all three suppliers will be disru pled using option 1?b) What is the probability that all three suppliers will be disrupted using option 2?c) What is the total annual purchasing and transportation cost plus expected annualized disruption cost for option I?d) What is the total annual purchasing and transportation cost plus expected annualized disruption cost for option 2?e) Which option seems best?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Bloom's Jeans is searching for new suppliers, and Debbie
Bloom, the owner, has narrowed her choices to two sets. Debbie is
very concerned about supply disruptions, so she has chosen to use
three suppliers no matter what. For option l, the suppliers are well
established and located in the same country. Debbie calculates the
" unique-event" risk for each of them to be 4%. She estimates the
probability of a nationwide event that would knock out all three suppliers
to be 2.5%. For option 2, the suppliers are newer but located in
three different countries. Debbie calculates the " unique-event" risk
for each of them to be 20%. She estimates the "super-event" probability
that would knock out all three of these suppliers to be 0.4%.
Purchasing and transportation costs would be $1 ,000,000 per year
using option 1 and $1,0 I 0,000 per year using option 2. A total disruption
would create an annualized loss of$500,000.
a) What is the probability that all three suppliers will be disru pled using option 1?
b) What is the probability that all three suppliers will be disrupted using option 2?
c) What is the total annual purchasing and transportation cost plus expected annualized disruption cost for option I?
d) What is the total annual purchasing and transportation cost plus expected annualized disruption cost for option 2?
e) Which option seems best?

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