Posted: May 9th, 2021

Operations strategy mgmt 707 ellisson seafood company decision tree

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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