Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in ship- ping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability that UPS will go on strike and impact Sharp Outfits’s shipments. a. For which values of p, if any, does Sharp Outfits minimize its expected total cost by choosing to postpone shipping its customer orders via UPS? b. Suppose now that, at a cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the company assesses that if there will be a strike, the information will predict a strike with probability 0.75, and if there will not be a strike, the information will predict no strike with probability 0.85. Provided that p 5 0.15, what strategy should Sharp Outfits pursue to minimize its expected total cost? c. Using the analysis from part b, find the EVI when p 5 0.15. Then use a data table to find EVI for pfrom 0.05 to 0.30 in increments of 0.05, and chart EVI versus p. d. Continuing part b, calculate and interpret the EVPI when p 5 0.15.
Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and
the UPS strike takes place, the company will incur $60,000 in delay and shipping costs. If Sharp Outfits decides to ship the customer orders via UPS and no strike occurs, the company will incur $4000 in ship-
ping costs. If Sharp Outfits decides to postpone shipping its customer orders via UPS, the company will incur $10,000 in delay costs regardless of whether UPS goes on strike. Let p represent the probability
that UPS will go on strike and impact Sharp Outfits’s shipments.
a. For which values of p, if any, does Sharp Outfits minimize its expected total cost by choosing to postpone shipping its customer orders via UPS?
b. Suppose now that, at a cost of $1000, Sharp Outfits can purchase information regarding the likelihood of a UPS strike in the near future. Based on similar strike threats in the past, the company assesses that if there will be a strike, the information will predict
a strike with probability 0.75, and if there will not be a strike, the information will predict no strike with probability 0.85. Provided that p 5 0.15, what strategy should Sharp Outfits pursue to minimize
its expected total cost?
c. Using the analysis from part b, find the EVI when p 5 0.15. Then use a data table to find EVI for pfrom 0.05 to 0.30 in increments of 0.05, and chart EVI versus p.
d. Continuing part b, calculate and interpret the EVPI when p 5 0.15.
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