OMGT2229: Strategic Supply Chain Assignment, RMIT, Singapore: Draw a decision tree for each option reflecting the uncertainties over the next two periods

Task Questions to be done in Excel:

a) Draw a decision tree for each option reflecting the uncertainties over the next two periods. Identify each node in terms of demand and variable cost (which may be affected by the fluctuations in the exchange rate) and the transition probabilities. Use two decimal points in your notation of variable cost, if needed.

b) If CosyHome is to pick only one of the two suppliers, which one would you recommend? What is the NPV of the expected profit over the next two periods for each of the two choices? Assume an interest rate of k = 0.1 per period.

c) What do you think about the hybrid approach? Is it worth paying the local supplier extra to use it as part of a hybrid strategy? For the hybrid approach, assume that CosyHome will order a base load of 1,300 units from the Chinese supplier for each of the two periods, making up any shortfall in each period at the local supplier. Evaluate the NPV of the expected profits for the hybrid option assuming an interest rate of k = 0.1 per period.

d) Create a comparison sheet using the following format. Based on the findings from (b) and (c), which option should U17 pursue? Why?

Task Question to be done in Word:

e) Conduct your own research and find out how the decision tree methodology can be applied to the risk analysis in the home furniture industry. As the type of risks in the upstream, midstream, and downstream of a home furniture supply chain may vary, the tools for risk analysis (decision tree methodology can be one of them) may be different. You may wish to discuss the application in the different aspects of the supply chain operation based on the uncertainties involved.

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