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Operations Management
C-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE Co. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $600 300 0.30 0.60 FAILURE 0.10 (100) USE PRESENT PROCESS PROFIT(M) $300 OUTCOMES PROBABILITY GR SUCCESS 0.50 MODERATE SUCCESS 0.30 200 FAILURE 0.20 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & 1.00 250 DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are PROFIT Low demand ( 4) High domand (.6) ise expected munetary vann $40 Do nothing $40 Overtime $50 Expand Build umal $55 ($10) Do nothing Build lorge Low demand 4) High demand (.6) Reduce prices $50 $70

C-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE Co. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $600 300 0.30 0.60 FAILURE 0.10 (100) USE PRESENT PROCESS PROFIT(M) $300 OUTCOMES PROBABILITY GR SUCCESS 0.50 MODERATE SUCCESS 0.30 200 FAILURE 0.20 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & 1.00 250 DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are PROFIT Low demand ( 4) High domand (.6) ise expected munetary vann $40 Do nothing $40 Overtime $50 Expand Build umal $55 ($10) Do nothing Build lorge Low demand 4) High demand (.6) Reduce prices $50 $70

Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
ChapterC: Cases
Section: Chapter Questions
Problem 5.2SB
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C-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TOo A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS OUTCOMES PROFIT(M) $600 PROBABILITY GREAT SUCCESS 0.30 MODERATE SUCCESS 0.60 300 FAILURE 0.10 (100) USE PRESENT PROCESS PROFIT(M) $300 OUTCOMES PROBABILITY GREAT SUCCESS 0.50 MODERATE SUCCESS 0.30 200 FAILURE 0.20 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS 1.00 250 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE cO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are PROFIT ize expected monetary van. $40 Low demond (. 4) Do nothing Overtime + $50 #$40 High demand [.6) Expand Build smal $55 Build large Rocuce prices Low domand (.4) $50 High demand (.6) $70
Transcribed Image Text:C-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TOo A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS OUTCOMES PROFIT(M) $600 PROBABILITY GREAT SUCCESS 0.30 MODERATE SUCCESS 0.60 300 FAILURE 0.10 (100) USE PRESENT PROCESS PROFIT(M) $300 OUTCOMES PROBABILITY GREAT SUCCESS 0.50 MODERATE SUCCESS 0.30 200 FAILURE 0.20 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS 1.00 250 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE cO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are PROFIT ize expected monetary van. $40 Low demond (. 4) Do nothing Overtime + $50 #$40 High demand [.6) Expand Build smal $55 Build large Rocuce prices Low domand (.4) $50 High demand (.6) $70
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