Chapter 2, Problem 10P

a)

Summary Introduction

To determine: The suitable outsourcing provider for logistics services using factor- rating method.

Introduction:

Factor-rating method:

The factor-rating method is a quantitative approach to make a decision from various alternatives such that the decision is beneficial to the firm involved. This method is utilized to decide on new layout, new locations, best supplier, outsourcing providers etc.

Answer to Problem 10P

Garza should select worldwide delivery.

Explanation of Solution

Given information:

		Ratings of Logistics Providers
Criterion	Weight	Overnight Shipping	Worldwide Delivery	United Freight
Quality	5	90	80	75
Delivery	3	70	85	70
Cost	2	70	80	95

Weights = 1-5 (5 – Highest)

Ratings = 1-100 (100 – Highest)

Formula to calculate weighted rating:

$\text{Weighted Rating = Weight × rating}$

Formula to calculate weighted average:

$\text{Weighted average = }\frac{{\displaystyle \sum \text{Individual}\text{weighted rating}}}{{\displaystyle \sum \text{Individual weights}}}$

Excel Formula:

Calculation for Overnight Shipping:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 90}\\ \text{= 450}\end{array}$

The weighted rating for Quality is 450.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 70}\\ \text{= 210}\end{array}$

The weighted rating for Delivery is 210.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 70}\\ \text{= 140}\end{array}$

The weighted rating for Cost is 140.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{450 + 210 + 140}}{\text{5 + 3 + 2}}\\ =\frac{800}{10}\\ =\text{ 80}\end{array}$

The weighted average for Overnight shipping is 80.

Calculation for Worldwide delivery:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 80}\\ \text{= 400}\end{array}$

The weighted rating for Quality is 400.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 85}\\ \text{= 255}\end{array}$

The weighted rating for Delivery is 255.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 80}\\ \text{= 160}\end{array}$

The weighted rating for Cost is 160.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{400 + 255 + 160}}{\text{5 + 3 + 2}}\\ =\frac{815}{10}\\ =\text{ 81}\text{.5}\end{array}$

The weighted average for worldwide delivery is 81.5.

Calculation for United Freight:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 75}\\ \text{= 375}\end{array}$

The weighted rating for Quality is 375.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 70}\\ \text{= 210}\end{array}$

The weighted rating for Delivery is 210.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 95}\\ \text{= 190}\end{array}$

The weighted rating for Cost is 190.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{375 + 210 + 190}}{\text{5 + 3 + 2}}\\ =\frac{775}{10}\\ =\text{ 77}\text{.5}\end{array}$

The weighted average for United Freight is 77.5.

The weighted average value for Overnight Shipping is 80. The weighted average value for worldwide delivery is 81.5. The weighted average value for united Freight is 77.5. The weighted average value is more for worldwide delivery (81.5 > 80, 77.5)

Hence, Garza should select worldwide delivery.

b)

Summary Introduction

To determine: The suitable outsourcing provider for logistics services using factor- rating method when the weights are changed.

Introduction:

Factor-rating method:

The factor-rating method is a quantitative approach to make a decision from various alternatives such that the decision is beneficial to the firm involved. This method is utilized to decide on new layout, new locations, best supplier, outsourcing providers etc.

Answer to Problem 10P

There is No Change.

Explanation of Solution

Given information:

		Ratings of Logistics Providers
Criterion	Weight	Overnight Shipping	Worldwide Delivery	United Freight
Quality	10	90	80	75
Delivery	6	70	85	70
Cost	4	70	80	95

Weights = 1-10 (10 – Highest)

Ratings = 1-100 (100 – Highest)

Formula to calculate weighted rating:

$\text{Weighted Rating = Weight × rating}$

Formula to calculate weighted average:

$\text{Weighted average = }\frac{{\displaystyle \sum \text{Individual}\text{weighted rating}}}{{\displaystyle \sum \text{Individual weights}}}$

Excel Formula:

Calculation for Overnight Shipping:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 10 × 90}\\ \text{= 900}\end{array}$

The weighted rating for Quality is 900.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 6 × 70}\\ \text{= 420}\end{array}$

The weighted rating for Delivery is 420.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 4 × 70}\\ \text{= 280}\end{array}$

The weighted rating for Cost is 280.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{900 + 420 + 280}}{\text{10 + 6 + 4}}\\ =\frac{1600}{20}\\ =\text{ 80}\end{array}$

The weighted average for Overnight shipping is 80.

Calculation for Worldwide delivery:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 10 × 80}\\ \text{= 800}\end{array}$

The weighted rating for Quality is 800.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 6 × 85}\\ \text{= 510}\end{array}$

The weighted rating for Delivery is 510.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 4 × 80}\\ \text{= 320}\end{array}$

The weighted rating for Cost is 320.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{800 + 510 + 320}}{\text{10 + 6 + 4}}\\ =\frac{1630}{20}\\ =\text{ 81}\text{.5}\end{array}$

The weighted average for worldwide delivery is 81.5.

Calculation for United Freight:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 10 × 75}\\ \text{= 750}\end{array}$

The weighted rating for Quality is 750.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 6 × 70}\\ \text{= 420}\end{array}$

The weighted rating for Delivery is 420.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 4 × 95}\\ \text{= 380}\end{array}$

The weighted rating for Cost is 380.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{750 + 420 + 380}}{\text{10 + 6 + 4}}\\ =\frac{1550}{20}\\ =\text{ 77}\text{.5}\end{array}$

The weighted average for United Freight is 77.5.

The weighted average value for Overnight Shipping is 80. The weighted average value for worldwide delivery is 81.5. The weighted average value for united Freight is 77.5. The weighted average value is more for worldwide delivery (81.5 > 80, 77.5)

There is no change in the result because there is no change made to the ratings. The weights were doubled without changes to any other parameter. Hence, there is no change in the conclusion attained in part (a).

Hence, there is No change.

c)

Summary Introduction

To determine: The suitable outsourcing provider for logistics services using factor- rating method when there is 10% increase in Overnight Shipping ratings.

Introduction:

Factor-rating method:

The factor-rating method is a quantitative approach to make a decision from various alternatives such that the decision is beneficial to the firm involved. This method is utilized to decide on new layout, new locations, best supplier, outsourcing providers etc.

Answer to Problem 10P

The best outsourcing provider is Overnight Shipping.

Explanation of Solution

Given information:

		Ratings of Logistics Providers
Criterion	Weight	Overnight Shipping	Worldwide Delivery	United Freight
Quality	10	90	80	75
Delivery	6	70	85	70
Cost	4	70	80	95

Weights = 1-10 (10 – Highest)

Ratings = 1-100 (100 – Highest)

Formula to calculate weighted rating:

$\text{Weighted Rating = Weight × rating}$

Formula to calculate weighted average:

$\text{Weighted average = }\frac{{\displaystyle \sum \text{Individual}\text{weighted rating}}}{{\displaystyle \sum \text{Individual weights}}}$

Formula to calculate 10% of Overnight Shipping ratings:

$\text{10\% of overnight shipping = overnight shipping rating }\times \frac{10}{100}$

Formula to calculate New Overnight Shipping rating:

$\text{New overnight shipping rating = 10\% of overnight shipping rating + overnight shipping rating}$

Excel Formula:

Calculation of 10 % of Overnight Shipping ratings:

Quality:

$\begin{array}{c}\text{10\% of Quality = 90 }\times \frac{10}{100}\\ =9\end{array}$

The 10% value of Quality is 9.

Delivery:

$\begin{array}{c}\text{10\% of Delivery = 70 }\times \frac{10}{100}\\ =7\end{array}$

The 10% value of delivery is 7.

Cost:

$\begin{array}{c}\text{10\% of cost = 70 }\times \frac{10}{100}\\ =7\end{array}$

The 10% value of cost is 7.

Calculation of New Overnight Shipping ratings:

Quality:

$\begin{array}{c}\text{New Quality overnight shipping rating = 9 + 90}\\ \text{= 99}\end{array}$

The new quality overnight shipping rating is 99.

Delivery:

$\begin{array}{c}\text{New Delivery overnight shipping rating = 7 + 70}\\ \text{= 77}\end{array}$

The new delivery overnight shipping rating is 77.

Cost:

$\begin{array}{c}\text{New cost overnight shipping rating = 7 + 70}\\ \text{= 77}\end{array}$

The new cost overnight shipping rating is 77.

Calculation for Overnight Shipping:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 99}\\ \text{= 495}\end{array}$

The weighted rating for Quality is 495.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 77}\\ \text{= 231}\end{array}$

The weighted rating for Delivery is 231.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 77}\\ \text{= 154}\end{array}$

The weighted rating for Cost is 154.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{495 + 231 + 154}}{\text{5 + 3 + 2}}\\ =\frac{880}{10}\\ =\text{ 88}\end{array}$

The weighted average for Overnight shipping is 88.

Calculation for Worldwide delivery:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 80}\\ \text{= 400}\end{array}$

The weighted rating for Quality is 400.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 85}\\ \text{= 255}\end{array}$

The weighted rating for Delivery is 255.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 80}\\ \text{= 160}\end{array}$

The weighted rating for Cost is 160.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{400 + 255 + 160}}{\text{5 + 3 + 2}}\\ =\frac{815}{10}\\ =\text{ 81}\text{.5}\end{array}$

The weighted average for worldwide delivery is 81.5.

Calculation for United Freight:

Calculation of weighted rating:

The weighted rating is calculated by multiplying the individual rating with the weight assigned for each criterion.

Quality:

$\begin{array}{c}\text{Weighted Rating for Quality = 5 × 75}\\ \text{= 375}\end{array}$

The weighted rating for Quality is 375.

Delivery:

$\begin{array}{c}\text{Weighted Rating for Delivery = 3 × 70}\\ \text{= 210}\end{array}$

The weighted rating for Delivery is 210.

Cost:

$\begin{array}{c}\text{Weighted Rating for Cost = 2 × 95}\\ \text{= 190}\end{array}$

The weighted rating for Cost is 190.

Calculation of weighted average:

The weighted average is calculated by dividing the summation of the individual weighted rating by the summation of the individual weights.

$\begin{array}{c}\text{Weighted average = }\frac{\text{375 + 210 + 190}}{\text{5 + 3 + 2}}\\ =\frac{775}{10}\\ =\text{ 77}\text{.5}\end{array}$

The weighted average for United Freight is 77.5.

The weighted average value for Overnight Shipping is 88. The weighted average value for worldwide delivery is 81.5. The weighted average value for united Freight is 77.5. The weighted average value is more for Overnight Shipping (88 > 81.5, 77.5)

Hence, Garza should select Overnight Shipping.