Answered: Kryoneriperfume company is considering…

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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Kryoneriperfume company is considering the following
two alternatives for the supply of vetiver oil (an essential oil used in
high-end perfumes). Alternative one is to use two suppliers located
in Haiti where half of the world’s vetiver oil comes from. Each

has a “unique-event” risk of 5%, and the probability of a “super-
event” that would disable both at the same time is estimated to be

15%, due to Haiti’s vulnerability to earthquakes (remember the
earthquake in 2010). Alternative 2 is to use two suppliers located
in Japan (another main producer of vetiver oil) where each has a
“unique-event” risk of 1%, and the probability of a “super-event”
that would disable both at the same time is estimated to be 2%, due
to Japan’s exceptionally great infrastructure developed after 1995
Kobe earthquake. Estimate which alternative seems best?

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