0() The value of fle5ibility increases "ith an increase in uncertainty. #ns"er$ T%&' Diff$ 1 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees 00) The inclusion of uncertainty typically increases the value of rigidity and decreases the value of fle5ibility. #ns"er$ F#+' Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 04) ffshoring typically lo"ers labor, "or!ing capital and fi5ed costs but increases ris! and freight costs. #ns"er$ F#+' Diff$ 0 Topic$ 6.0 %is! @anagement in *lobal +upply hains ##+A$ Dynamics of the *lobal 'conomy earning utcome$ ompare common approaches to supply chain design
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6.( @ultiple hoice Questions 1) Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and sie of plants to build, the number of truc!s to purchase or lease, and "hether to build or lease "arehouse space, #) can be altered in the short term. A) cannot be altered in the short term. ) cannot be altered in the long term. D) can only be altered in the short term. ') all of the above #ns"er$ A Diff$ 1 Topic$ 6.1 The mpact of *lobaliation on +upply hain -et"or!s earning utcome$ ompare common approaches to supply chain design () Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and sie of plants to build, the number of truc!s to purchase or lease, and "hether to build or lease "arehouse space, #) are realigned every fe" "ee!s. A) only remain in place for several years. ) rarely remain in place for several years. D) only remain in place for a fe" "ee!s. ') often remain in place for several years. #ns"er$ ' Diff$ 0 Topic$ 6.1 The mpact of *lobaliation on +upply hain -et"or!s earning utcome$ ompare common approaches to supply chain design 0) Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and sie of plants to build, the number of truc!s to purchase or lease, and "hether to build or lease "arehouse space, #) define the boundaries "ithin "hich the supply chain must compete. A) have little impact on ho" the supply chain must compete. ) are irrelevant regarding ho" the supply chain "ill compete. D) are the only consideration regarding ho" the supply chain "ill compete. ') none of the above #ns"er$ # Diff$ ( Topic$ 6.1 The mpact of *lobaliation on +upply hain -et"or!s earning utcome$ ompare common approaches to supply chain design
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4) ongterm contracts for both "arehousing and transportation re2uirements "ill be more effective if #) the demand and price of "arehousing do not change in the future. A) the price of "arehousing goes up in the future. ) demand drops in the future. D) the price of "arehousing drops in the future. ') # and A only #ns"er$ ' Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 3) +hortterm contracts for both "arehousing and transportation re2uirements "ill be more effective #) if the demand and price of "arehousing do not change in the future. A) if the price of "arehousing goes up in the future. ) if either demand or the price of "arehousing drops in the future. D) only if demand drops in the future. ') only if the price of "arehousing drops in the future. #ns"er$ Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 6) The degree of demand and price uncertainty has #) no effect on the appropriate portfolio of long and shortterm "arehousing space that a firm should carry. A) a limited influence on the appropriate portfolio of long and shortterm "arehousing space that a firm should carry. ) a minor influence on the appropriate portfolio of long and shortterm "arehousing space that a firm should carry. D) a significant influence on the appropriate portfolio of long and shortterm "arehousing space that a firm should carry. ') -one of the above are true. #ns"er$ D Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design
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:) &ncertainty of demand and price #) drives the value of building fle5ible production capacity at a plant. A) eliminates the value of building fle5ible production capa city at a plant. ) facilitates the value of building fle5ible production capacity at a plant. D) has no effect on the value of building fle5ible production capacity at a plant. ') -one of the above are true. #ns"er$ # Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design <) f price and demand do vary over time in a global net"or!, #) fle5ible production capacity should not be used in the ne" environment. A) fle5ible production capacity "ill be ineffective in the ne" environment. ) fle5ible production capacity can be reconfigured to minimie profits in the ne" environment. D) fle5ible production capacity can be reconfigured to ma5imie profits in the ne" environment. ') fle5ible production capacity should never be used in an uncertain environment. #ns"er$ D Diff$ ( Topic$ 6.6 To nshore or ffshore$ 'valuation of *lobal +upply hain Design Decisions &nder &ncertainty =) # firm may choose to build a fle5ible global supply chain even in the presence of little demand or supply uncertainty if #) certainty e5ists in both e5change rates and prices. A) certainty e5ists in e5change rates or prices. ) uncertainty e5ists in both e5change rates and prices. D) uncertainty e5ists in e5change rates or prices. ') uncertainty e5ists only in e5change rates. #ns"er$ D Diff$ ( Topic$ 6.6 To nshore or ffshore$ 'valuation of *lobal +upply hain Design Decisions &nder &ncertainty 17) The present value of a future stream of cash flo"s is "hat that stream #) "as "orth in yesterday;s dollars. A) is "orth in today;s dollars. ) "ill be "orth in future dollars. D) might be "orth in future dollars. ') none of the above #ns"er$ A Diff$ 1 Topic$ 6.4 Discounted ash Flo"s
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11) The process of evaluating the present value of any stream of future cash flo"s so that management can compare t"o streams of cash flo"s in terms of their financial value is #) annual cash flo" B#F) analysis. A) discretionary cash flo" BDF) analysis. ) discounted cash flo" BDF) analysis. D) future cash flo" BFF) analysis. ') none of the above #ns"er$ Diff$ ( Topic$ 6.4 Discounted ash Flo"s 1() The present value of future cash flo" is found by #) locating the correct factor on a table. A) using a discount factor. ) plotting the function on a graph. D) adding the total of all future cash flo"s. ') none of the above #ns"er$ A Diff$ ( Topic$ 6.4 Discounted ash Flo"s 10) The discount factor used to obtain the present value of money in the ne5t period "here k represents the rate of return is #) k . A) 1k . ) 1/B1k ). D) k /B1k ). ') none of the above #ns"er$ Diff$ ( Topic$ 6.4 Discounted ash Flo"s 14) The rate of return k is also referred to as the #) discount rate. A) hurdle rate. ) opportunity cost of capital. D) all of the above ') none of the above #ns"er$ D Diff$ 1 Topic$ 6.4 Discounted ash Flo"s
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13) Chat is the present value of a E(: revenue that "ill be received in one year "here the rate of return is < B.7<)G #) E(.37 A) E13.77 ) E(3.77 D) E07.77 ') none of the above #ns"er$ Diff$ 1 Topic$ 6.4 Discounted ash Flo"s 16) The net present value B-8>) of a stream of cash flo"s is e2ual to #) the sum of all cash flo"s for all periods being considered. A) the sum of all cash flo"s for all periods being considered divided by the number of periods. ) the average of all cash flo"s for all periods being considered. D) the average of all cash flo"s for all periods being considered multiplied by the number of periods. ') the sum of all cash flo"s for all periods being considered discounted by the rate of return for each period. #ns"er$ ' Diff$ 0 Topic$ 6.4 Discounted ash Flo"s 1:) # negative -8> Bnet present value) for an option indicates that the option "ill #) gain money for the supply chain. A) lose money for the supply chain. ) ma5imie profit for the supply chain. D) minimie profit for the supply chain. ') none of the above #ns"er$ A Diff$ ( Topic$ 6.4 Discounted ash Flo"s 1<) The decision "ith the highest -8> Bnet present value) "ill provide a supply chain "ith #) the highest financial return. A) the lo"est financial return. ) a reasonable financial return. D) the least desirable financial return. ') none of the above #ns"er$ # Diff$ ( Topic$ 6.4 Discounted ash Flo"s
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1=) The -8> Bnet present value) of a cash stream that is e2ual to E177 per period for 3 periods "ith a rate of return of 17 B.17) per period "ould be #) 0:=.7<. A) 416.=<. ) 377.77. D) 617.31. ') 6:1.36. #ns"er$ A Diff$ ( Topic$ 6.4 Discounted ash Flo"s (7) The -8> Bnet present value) of a cash stream that is e2ual to E:3 per period for 3 periods "ith a rate of return of 17 B.17) per period "ould be #) ((1.0:. A) (<4.07. ) 01(.:4. D) 0:3.77. ') none of the above #ns"er$ Diff$ ( Topic$ 6.4 Discounted ash Flo"s (1) n reality, demand and prices are #) highly certain and not li!ely to fluctuate during the life of any supply chain decision. A) highly certain and li!ely to fluctuate during the life of any supply chain decision. ) highly uncertain and not li!ely to fluctuate during the life of any supply chain decision. D) highly uncertain and li!ely to fluctuate during the life of any supply chain decision. ') none of the above #ns"er$ D Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (() For a global supply chain, e5change rates and inflation are #) li!ely to vary over time in different locations. A) not li!ely to vary over time in different locations. ) not li!ely to vary over time in any locations. D) li!ely to be stable over time in all locations. ') none of the above #ns"er$ # Diff$ 1 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design
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(0) The binomial representation of uncertainty is based on the assumption that "hen moving from one period to the ne5t, the value of the underlying factor Bsuch as demand or price) #) has only one possible outcome. A) has only t"o possible outcomes up or do"n. ) has many possible outcomes. D) cannot be accurately determined. ') none of the above #ns"er$ A Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (4) n the commonly used multiplicative binomial, it is assumed that the underlying factor #) moves up by a factor u H 1 "ith probability p. A) moves do"n by a factor u H 1 "ith probability p. ) moves do"n by a factor d < 1 "ith probability 1 p. D) either # or A ') either # or #ns"er$ ' Diff$ 0 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (3) The multiplicative binomial can be used for factors li!e d emand, price, and e5change rates that cannot become negative because it #) can ta!e on negative values. A) cannot ta!e on negative values. ) can ta!e on positive values. D) cannot ta!e on positive values. ') all of the above #ns"er$ A Diff$ 0 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (6) # logical ob?ection to both the multiplicative and additive binomial is the fact that the underlying factor #) ta!es on only one of t"o possible values at the end of each period. A) ta!es on t"o values at the end of each period. ) ta!es on one of many possible values at the end of each period. D) ta!es on several of many possible values at the end of each period. ') none of the above #ns"er$ # Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 610 opyright (710 8earson 'ducation, nc. publishing as 8rentice 9all
(:) # decision tree is #) a graphic device used to evaluate decisions under certainty. A) a graphic device used to evaluate decisions under uncertainty. ) a tabular device used to evaluate decisions under certainty. D) a tabular device used to evaluate decisions under uncertainty. ') none of the above #ns"er$ A Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (<) Decision tree analysis is based on Bellman's principle, "hich states that for any choice of strategy in a given state, #) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the first period. A) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the last period. ) the optimal strategy in the ne5t period is the one that is selected if the entire analysis is assumed to begin in the last period. D) the optimal strategy in the ne5t period is the one that is selected if the entire analysis is assumed to begin in the ne5t period. ') none of the above #ns"er$ D Diff$ 0 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design (=) The first step in decision tree analysis methodology is to #) identify factors such as demand, price, and e5change rate, "hose fluctuation "ill be considered over the ne5t T periods. A) identify the periodic discount rate k for each period. ) start at period T, "or! bac! to 8eriod 7 identifying the optimal decision and the e5pected cash flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted bac! "hen included in the previous period. D) identify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over "hich the decision is to be evaluated. ') identify representations of uncertainty for each factorI that is, determine "hat distribution to use to model the uncertainty. #ns"er$ D Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design
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07) The last step in decision tree analysis methodology is to #) identify factors such as demand, price, and e5change rate, "hose fluctuation "ill be considered over the ne5t T periods. A) identify the periodic discount rate k for each period. ) start at period T, "or! bac! to 8eriod 7, identifying the optimal decision and the e5pected cash flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted bac! "hen included in the previous period. D) identify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over "hich the decision is to be evaluated. ') identify representations of uncertainty for each factorI that is, determine "hat distribution to use to model the uncertainty. #ns"er$ Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 01) &ncertainty in demand and economic factors should be included in the financial evaluation of supply chain design decisions, because #) the e5clusion of certainty may have a significant impact on this evaluation. A) the e5clusion of uncertainty may have a significant impact on this evaluation. ) the inclusion of certainty may have a significant impact on this evaluation. D) the inclusion of uncertainty may have a significant impact on this evaluation. ') none of the above #ns"er$ D Diff$ 0 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 0() Fle5ibility should be valued by ta!ing into account uncertainty in demand and economic factors. n general, fle5ibility "ill tend to #) decrease in value "ith a decrease in certainty. A) increase in value "ith an increase in uncertainty. ) decrease in value "ith an increase in uncertainty. D) increase in value "ith an increase in certainty. ') -one of the above are accurate. #ns"er$ A Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design
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00) # ma?or factor that ma!es the decision tree methodology 2uite po"erful is #) the choice of certainty. A) the choice of discount rate. ) the choice of uncertainty level. D) the choice of additive factor. ') all of the above #ns"er$ A Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 04) The appropriate discount rate used in decision tree methodology #) should be ris!ad?usted and ris! may vary by period and decision node. A) should be ris!ad?usted and ris! may not vary by period and decision node. ) should not be ris!ad?usted and ris! may vary by period and decision node. D) should not be ris!ad?usted and ris! may not vary by period and decision node. ') -one of the above are accurate. #ns"er$ # Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 03) Firms should use simulation for evaluating decisions "hen #) underlying decision trees are simple and e5plicit solutions for the underlying decision tree are difficult to obtain. A) underlying decision trees are very comple5 and e5plicit solutions for the underlying decision tree are difficult to obtain. ) underlying decision trees are simple and e5plicit solutions for the underlying decision tree are easy to obtain. D) underlying decision trees are very comple5 and e5plicit solutions for the underlying decision tree are easy to obtain. ') none of the above #ns"er$ A Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 06) n a comple5 decision tree there are #) only a fe" possible paths that may result from the first period to the last. A) less than thirty possible paths that may result from the first period to the last. ) thousands of possible paths that may result from the first period to the last. D) an infinite number of possible paths that may result from the first period to the last. ') none of the above #ns"er$ Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees earning utcome$ ompare common approaches to supply chain design 616 opyright (710 8earson 'ducation, nc. publishing as 8rentice 9all
0:) +imulation models #) re2uire a higher setup cost to start and operate compared to decision tree tools. A) re2uire a lo"er setup cost to start and operate compared to decision tree tools. ) re2uire a higher setup cost to start but less to operate compared to decision tree tools. D) re2uire a lo"er setup cost to start but more to operate compared to decision tree tools. ') none of the above #ns"er$ # Diff$ 0 Topic$ 6.6 To nshore or ffshore$ 'valuation of *lobal +upply hain Design Decisions &nder &ncertainty earning utcome$ ompare common approaches to supply chain design 0<) +trategic planning and financial planning #) should be performed independently during supply chain net"or! design. A) should be performed se2uentially during supply chain net"or! design. ) should be performed hierarchically during supply chain net"or! design. D) should be performed concurrently during supply chain net"or! design. ') should be combined during supply chain net"or! design. #ns"er$ ' Diff$ 0 Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice 0=) The evaluation of supply chain net"or!s #) should use only one metric. A) should use multiple metrics. ) should not use more than one metric. D) should not use multiple metrics. ') should be sub?ective. #ns"er$ A Diff$ ( Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice 47) Financial analysis should be used as #) the decisionma!ing process. A) an alternative decisionma!ing process. ) an input to decision ma!ing, not as the decisionma!ing process. D) all of the above ') none of the above #ns"er$ Diff$ ( Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice
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41) ne of the best "ays to speed up the process of financial analysis and arrive at a good decision is to #) use estimates of inputs "hen it appears that finding a very accurate input "ould ta!e an inordinate amount of time. A) use estimates bac!ed up by sensitivity analysis "hen it appears that finding a very accurate input "ould ta!e an inordinate amount of time. ) use estimates of inputs e5cept "hen it appears that finding a very accurate input "ould ta!e an inordinate amount of time. D) ma!e sure that every detail is very accurate. ') none of the above #ns"er$ A Diff$ 0 Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice 4() The tailored strategy JFocus on lo"cost, decentralied capacity for predictable demandJ follo"s "hich ris! mitigation strategyG #) *et redundant suppliers A) ncrease capacity ) ncrease responsiveness D) ncrease inventory #ns"er$ A Diff$ 0 Topic$ 6.0 %is! @anagement in *lobal +upply hains earning utcome$ ompare common approaches to supply chain design 40) Fle5ibility can be divided into three broad categories. Chich of the follo"ing is not one of the categoriesG #) -e" product fle5ibility A) @i5 fle5ibility ) %is! fle5ibility D) >olume fle5ibility #ns"er$ Diff$ ( Topic$ 6.0 %is! @anagement in *lobal +upply hains 44) # labor dispute is a ris! driver to be considered during net"or! design. Chat category does a Jlabor disputeJ belongG #) Disruptions A) nventory ris! ) +ystems ris! D) apacity ris! #ns"er$ # Diff$ 0 Topic$ 6.0 %is! @anagement in *lobal +upply hains earning utcome$ ompare common approaches to supply chain design
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43) Chat is the type of this net"or! designG
#) Dedicated net"or! A) Fully fle5ible net"or! ) hained net"or! "ith one long chain D) hained net"or! "ith t"o long chains #ns"er$ A Diff$ 1 Topic$ 6.( The ffshoring Decision$ Total ost ##+A$ #nalytic +!ills earning utcome$ ompare and contrast different sourcing strategies including outsourcing and insourcing 46) +imulation methods are very good at evaluating decisions "hen #) the paths are decision dependent. A) the decision rules are simple. ) there are different forms of uncertainty. D) implicit solutions are needed for analysis. #ns"er$ Diff$ 0 Topic$ 6.6 To nshore or ffshore$ 'valuation of *lobal +upply hain Design Decisions &nder &ncertainty ##+A$ #nalytic +!ills earning utcome$ ompare common approaches to supply chain design 4:) The te5tboo! mentions that decision ma!ers should design global supply chain net"or!s considering a portfolio of strategic options including #) the option to "ait, build finite capacity, build fle5ible capacity. A) sign shorterterm contracts, purchase from the spot mar!et. ) uncertainty can usually be disregarded. D) the option to "ait, build e5cess capacity, build fle5ible capacity. #ns"er$ D Diff$ 1 Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice ##+A$ #nalytic +!ills earning utcome$ ompare common approaches to supply chain design
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6.0 'ssay Questions 1) '5plain additive and multiplicative binomial representations of uncertainty. #ns"er$ The binomial representation of uncertainty is based on the assumption that "hen moving from one period to the ne5t, the value of the underlying factor Bsuch as demand or price) has only t"o possible outcomes K up or do"n. n the commonly used multiplicative binomial, it is assumed that the underlying factor either moves up by a factor u H 1 "ith probability p, or do"n by a factor d L 1 "ith probability 1 p. n the additive binomial, it is assumed that the underlying factor increases by u in a given period "ith probability p and decreases by d "ith probability 1 p. The multiplicative binomial cannot ta!e on negative values and can be used for factors li!e demand, price, and e5change rates that cannot become negative. t also has the advantage of the gro"th or decline in the given factor being proportional to the current value of the factor and not fi5ed independent of sie. # logical ob?ection to both the multiplicative and additive binomial is the fact that the underlying factor ta!es on only one of t"o possible values at the end of each period. ertainly a price can change to more than ?ust t"o values. Aut by ma!ing the period short enough, this assumption may be ?ustified. Diff$ 0 Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees () +ummarie the steps in the decision tree analysis methodology. #ns"er$ The decision tree analysis methodology is summaried as follo"s$ 1. dentify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over "hich the decision is to be evaluated. (. dentify factors such as demand, price, and e5change rate, "hose fluctuation "ill be considered over the ne5t T periods. 0. dentify representations of uncertainty for each factorI that is, determine "hat d istribution to use to model the uncertainty. 4. dentify the periodic discount rate k for each period. 3. %epresent the decision tree "ith defined states in each period, as "ell as the transition probabilities bet"een states in successive periods. 6. +tarting at period T, "or! bac! to 8eriod 7, identifying the optimal decision and the e5pected cash flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted bac! "hen included in the previous period. Diff$ ( Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees
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0) Discuss the ideas that managers should consider to ma!e better supply chain net"or! design decisions under uncertainty. #ns"er$ @anagers should consider the follo"ing ideas to help them ma!e better net"or! design decisions under uncertainty$ 1. Combine strategic planning and financial planning during network design. n most organiations, financial planning and strategic planning are performed independently. +trategic planning tries to prepare for future uncertainties but often "ithout rigorous 2uantitative analysis, "hereas financial planning performs 2uantitative analysis but assumes a predictable or "ell defined future. Decision ma!ers should design supply chain net"or!s considering a portfolio of strategic optionsMthe option to "ait, build e5cess capacity, build fle5ible capacity, sign longterm contracts, purchase from the spot mar!et, and so forth. The various options should be evaluated in the conte5t of future uncertainty. (. Use multiple metrics to evaluate suppl chain networks. #s one metric can only give part of the picture, it is beneficial to e5amine net"or! design decisions using multiple metrics such as firm profits, supply chain profits, customer service levels, and response times. ften, different metrics "ill recommend different decisions and by using multiple metrics, the differences bet"een the strategic choices "ill become clearer. The best decisions can be made "hen a multitude of metrics are available, because each metric enhances the overall vie" of the alternatives being considered. 0. Use financial analsis as an input to decision m aking, not as the decision!making process. Financial analysis is a great tool in the decisionma!ing process, as it often produces an ans"er and an abundance of 2uantitative data to bac! up that ans"er. 9o"ever appealing this may be, management should not rely solely on financial analysis to ma!e decisions. &se of this analysis as a large part of the decisionma!ing process is fine, but other inputs into the decision process that are difficult to 2uantify should be included in the analysis as "ell. Financial methodologies alone do not provide a complete picture of the alternatives. These impacts should be considered in addition to the ra" financial analysis. n the final analysis, management must use other inputs beyond financial analysis in the decisionma!ing process to get the most complete vie" of the alternatives possible. 4. Use estimates along with sensitivit analsis. @any of the inputs into financial analysis can be difficult, if not impossible, to nail do"n in a very accurate fashion. This can cause financial analysis to be a long and dra"n out process. ne of the best "ays to speed the process along and arrive at a good decision is to use estimates of inputs "hen it appears that finding a very accurate input "ould ta!e an inordinate amount of time. &sing estimates is fine "hen the estimates are bac!ed up by sensitivity analysis. Ay performing sensitivity analysis on the input;s range, managers can often sho" that no matter "here the true input lies "ithin the range, the outcome remains the same. Chen this is not the case, they have highlighted a !ey variable to ma!ing the decision and it li!ely deserves more attention to arrive at a more accurate ans"er. n summary, to effectively ma!e supply chain design decisions, managers need to ma!e estimates of inputs and then test all recommendations "ith sensitivity analysis. Diff$ ( Topic$ 6.: @a!ing *lobal +upply hain Design Decisions &nder &ncertainty in 8ractice
6(1 opyright (710 8earson 'ducation, nc. publishing as 8rentice 9all
4) The NOP ompany has a choice bet"een t"o "arehouses. # lease at location # costs E1777 per month "ith a payment of E(777 up front to guarantee the 0 year lease. ocation A "ould cost E1(77 per month and "ould be leased from month to month. The anticipated revenue in either location is E1377 per month. The estimated rate of return is 17 per year. &sing net present value, determine "hich location "ould be the better choice. #ns"er$ ocation # '5pected annual profit 1( R BE1377 E1777) E6777 -8> E6777 BE6777/1.1) BE6777/1.1() E(777 E14,410.(( ocation A '5pected annual profit 1( R BE1377 E1(77) E0677 -8> E0677 BE0677/1.1) BE0677/1.1() E=<4:.=0 ocation # is the better choice. Diff$ ( Topic$ 6.4 Discounted ash Flo"s
6(( opyright (710 8earson 'ducation, nc. publishing as 8rentice 9all
