Decision Analysis Shuzworld - Essay Example

Decision Analysis Shuzworld-Task 3 Celina Flores July 31, Decision Analysis Shuzworld Shuzworld is a national retailer that has its headquarters in Omaha Nebraska, which deals primarily with the selling of shoes, boots, and sandals. It also produces its individual line of products ranging from work boots and sandals to rubber boots and rainwear and sport and adventure wear. The purpose of this memo is to provide recommendations on the best method that Shuzworld should use to manufacture its sneakers, also develops a sales volume forecast, and discusses the best manner in which to apply control chart metrics in an effort to improve on quality. A. After careful analysis, I recommend that the best option for Shuzworld is the purchasing of new equipment. A comparison was done of the options of either reconditioning the equipment that is already there, the purchase of new equipment or outsourcing of production. Alistair Wu and Angela Down got that data that was used to determine both the settled as well as variable costs from data that was provided. I made use of the break-even cost volume analysis tool for this particular comparison (Kolli, 2012). This tool helps in the overall analysis of cost based on the given variable as well as fixed costs. I was provided with the following information that I used together with the decision analysis tool (Mian, 2011). B. Consideration in the recommendation In the recommendation, there are alternatives that after considered in the company. When the business is making the decision of building new manufacturing stores, there are environmental factors that are considered and the profitability. There is consideration of building size and its cost. Cash flow is an important aspect to be ci9nsidered in the success of the business. The costs calculated in the chart does not consider the proximity of the store ton its suppliers and consumers. This important factor should be considered. Reconditioning the equipment that the company already has would come with a fixed cost of $ 500,000 and variable costs of $ 1,000 for every batch of 1,000 sneakers that were produced. Purchase of new equipment has a fixed cost of $ 200,000 as well as variable costs of $ 500 for every batch of 1,000. The third option of outsourcing production has no fixed cost and a variable cost of $ 3,000 for every batch of 1,000(Mian, 2011). Even though there is no cost of introduction when it comes to outsourcing, it does have an emotional increment, which is almost twice the cost of reconditioning, and over four times the cost it will take to purchase new supplies. This was information that was inputted into the decision analysis tool as shown below which led me to the recommendation that purchasing new equipment was the best option for the firm (Kolli, 2012). Forecast for sales volume During the third quarter of 2009, it is referred to as future period 9 checking upward. It therefore demonstrates the gauge for deals for that particular quarter as $ 121,861.10 moving on to $169,744.40 at the end of the fourth quarter of 2012. The trend also indicates that there is increase in the sales volume of the company. It is expected that this trend will remain steady resulting in higher sales volumes in future. This is determined from the second round of sales when there was an increase in the sales from 109,000 to 124,000. This is a a difference of 5,000. There can be determination of the monetary value for the state of nature. This can be through multiplying the probability with the existing state of nature. There is also consideration of the product of the probability by the other states of nature. This takes into account the probability of success and probability of making no success. When a decision tree is used in the recommendation, there will be conducting $20,000dollar market survey and observing changes in this aspect based on the new set of data. The recommendation in this aspect is that the business chooses the project that will make it produce the highest EMV. This will be that with chases based on the outcomes. Breakeven Analysis Cost-volume analysis Option 1 Option 2 Option 3 Data 1 2 3 Fixed Cost 500,000 200,000 0 Variable Cost 1000 500 3000 Breakeven Points Units Dollars($) Option 1 vs. 2 Option 300 350000 Option 1 vs. 3 Option 25 75000 2 Option v 3 Option 80 240000 As the above chart shows, the choice of purchasing new equipment to be a choice that is more superior. The breakeven cost volume analysis was picked since it has the right parameters to ensure that I was able to record clearly the different contrasting costs. Here I have both settled and variable costs for three distinct situations (Kolli, 2012). This tool provides a chance for me to develop the chart, which shows that volumes under 25 units provide a minimum cost of outsourcing. However, once the 25 unit line has been crossed, the next best option is reconditioning until it get to 300 units when the option of purchasing new equipment becomes the best decision in terms saving on costs (Mian, 2011). C. I created a deals gauge by making use of both the slightest squares approach exponential smoothing and a pattern. The primary technique used was the slightest squares strategy that makes use of conjectures or makes predictions of future deals using an arrangement that is in a straight line (Mian, 2011). The minimum squares technique on the other hand makes use of line charting using an x pivot, a y hub, and the captures in an effort to make the linear slant. Any change in the line is forecasting of change in deals for what is to come. The following chart provides the information for the x and y focuses with x describing the time coefficient and y referring to the amount (Kolli, 2012). D. The data used in the recommendation was calculated using POM application. The decision model that was chosen was with the Graphic Decision tree selected. The analysis tool used had the ability of enabling the calculation of expected monetary value with basing on minimizing or maximizing profits. The decision analysis option that was chosen was that which allowed for a visual representation of the choices made by Shuzworld. Quarter Sales 2nd -2007 90,000 3rd-2007 95,000 4th-2007 98,000 1st -2008 96,000 2nd-2008 102,000 3rd-2008 99,000 4th-2008 118,000 1st-2009 109,000 2nd-2009 124,000 In the chart above, during the third quarter of 2009, it is referred to as future period 9 checking upward. It therefore demonstrates the gauge for deals for that particular quarter as $ 121,861.10 moving on to $169,744.40 at the end of the fourth quarter of 2012(Kolli, 2012). I chose to make use of the exponential smoothing with a pattern system because I was provided with a .3 smoothing and .4 as the pattern with this particular data being used as a gauge to measure the 3rd quarter of 2009, which moved from $ 121, 861 to $ 117,028(Mian, 2011). The determining effects with regard to the slightest squares strategy is distinctly higher and has a smaller rate of lapsing, which could be taken to mean that, should be the system that Shuzworld uses to make estimations of their deals in the future (Mian, 2011). E. I also recommend that that Shuzworld should make use of Control Charts in their process of production. The charts are often used to enable an organization to separate the reasons why they are manufacturing different varieties of products (Kolli, 2012). Control charts are often shown graphically in order to make the process of understanding much easier. The two distinct reasons why a firm might require a control chart are common and assignable. Changes brought about by chance occurrences are in large part expected and are often referred to as common (Kolli, 2012). Often as long as these occurrences occur within the normal restrictions of production, they are thought of as largely being under control. On the other hand, changes that are brought about by a failure in supplies or fatigue on the employees who might create a drop in production are referred to as assignable because they could be attributed to a single thing or circumstance (Kolli, 2012). A control chart in Shuzworld’s case could be made using random shoes that come off the production line and investigating their level of quality in an effort to see which varieties of shoes that the company is producing. For their double-thickness elastic froth embellishment machine, the company has put in place a control limit of 99.73% with a standard deviation of .5 inches (Mian, 2011). This translates to 10.375 inches and the easier control limit is at 9.625 inches. Two of the 16 examples outside of the control limits can be classified as wild while the other 14 are considered as being in control. However, since the large majority of specimens have been reported as being crazy the methodology is not in control and therefore the company needs to consider ensuring that the procedure is brought under control (Kolli, 2012). Considering that both of the wild specimens came through the most recent 3 hours of the period that was checked, a realistic assignable reason is that the machine should be provided with a significant amount of support on a frequent basis (Kolli, 2012). The company also provided a control chart to abscond of drivers for 20 eyeleting machines. The testing made use of 100 items for each of the laborers and put down the mistakes from each of the items. The organization put the control limit at 99.73%. As seen on the chart, the UCLP appears to be .125 while the Lclp is zero (Mian, 2011). Making use of a P-chart would imply that qualities are being constantly measured which further argues that appraisal is not as accurate as it needs to be as seen by the number of imperfections that were counted(Kolli, 2012). It appears that the administrators are reporting outside the control restrictions and there is therefore a need for a constant analysis of their work in order to determine any issues that might exist or if a particular, issue that needs to be examined (Mian, 2011). Recommendation for Shuzworld There is consideration of purchase market research in Shuzworld case. This is able to have a positive or negative impact on the market and in the manufacturing process. Shuzworld could also decide not to make purchases on market research, which would lead to no impact in the manufacturing process and the market. The costs that would be used in marketing research would mount to $20,000. This has a probability of showing a favorable market with a percentage of 60 and a chance of 40% showing unfavorable behavior. When the market research carried out is positive, the chances of having a favorable market increases to 70% and when the results obtained are negative, and the chances of having unfavorable market increase is 80%. The possibility of strategic use is recommended in the evaluation as this shows the financial performance of the company mainly when there is necessity of opening a new store. This makes the leader in the industry have the knowledge which is needed to keep sales and be able to comply with the demand in a profitable and cost effective manner. This will lead to lack of losing business through not having enough stores to meet the market demands. The decision tree that is used in the analysis of the recommendation was to avoid many problems, which are commonly found in the manufacturing industry. The decision tree used in the analysis is also cost effective and a profit analysis model of an independent cost. This is shown in the cost study. The model is also used as it can be manipulated to produce the desired outcome in data. References Kolli, S. (2012). Production & Operations Management Essentials. New York: Research & Education. Mian, M.A. (2011). Project Economics and Decision Analysis: Deterministic Models. New York: PennWell Books. Read More