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Decision Analysis - Term Paper Example

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This memorandum provides information that will assist the company in making decisions, forecasts and controlling production processes. Part A The three options that are available to Shuzworld are as follows: Buy new equipment for the Shanghai facility; Recondition the existing equipment at the Shanghai facility; or Outsource production to a vendor in China. The purchasing of the new equipment will definitely cost the companies a lot but that will have its own benefits in terms of its long term usage and reliability, which is the main concern of many of the companies. The second option to use reconditioned equipment is another source through which the companies can start their business in a new location or in their headquarters. The reconditioned equipment will be available from the market at a lower cost and will give the start-up companies or the emerging companies an opportunity to start work with the lesser amount of investment. The companies will be able to follow their cost effective measures that they have thought about and then will be able to work on the other tasks after the first task of cost management has been effectively done as the reconditioned equipment will be cheaper in rate. However there will be one issue of the reliability of the machines, as they might need repairs often. This may be a major problem for an emerging company who might not have a back up plan if the main machinery gets damaged. This may cause Shuzworld to cease the production process as well. The third option in terms of using the equipment is related to outsourcing the work and operations to another contractor company. This will ease the management in a way that they will need labor that will handle operations in the work field as that responsibility will now be solely of the contractor company. The main disadvantage of using this option is that the companies might pay more for the products that they could produce themselves at their own plants at lesser costs. The decision on which option to choose will also depend on the current and forecast demand for Samba Sneakers. The buy and recondition options both have fixed cost but comparatively lower variable cost than the outsourcing option. The choice will depend on the number of Samba sneakers that Shuzworld expects to produce. Sensitivity analysis can be used to inform the decision. Sensitivity analysis is a technique that is used to determine ‘how the variation in output of a model can be apportioned to different sources of variation’ and how a given model will be influenced by information fed into it. The following table shows several production scenarios. Options Available for the Production of Samba Sneakers Production Volume     100,000 200,000 300,000 400,000 Recondition Existing Equipment   Per unit ($)         Fixed Cost 50,000   50,000 50,000 50,000 50,000 Variable cost/1,000 sneakers 1,000 1 100000 200000 300000 400000 Total Cost     150,000 250,000 350,000 450,000               Buying New Equipment             Fixed Cost 200,000   200,000 200,000 200,000 200,000 Variable cost/1,000 sneakers 500 0.5 50000 100000 150000 200000 Total Cost     250,000 300,000 350,000 400,000               Outsourcing             Fixed Cost 0   0 0 0 0 Variable cost/1,000 sneakers 3,000 3 300,000 600,000 900,000 1,200,000 Total Cost     300,000 600,000 9 ...Show more
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Decision Analysis: Task 3 Shuzworld Name Instructor University Date Memorandum To: Executive management (Shuzworld Inc) From: Business Analyst Date: 18 Jan 2012 Subject: Analysis of Business Operations Shuzworld Inc Introduction Shuzworld faces a number of options in producing its Samba Sneakers and these options have to be properly analyzed…
Decision Analysis
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