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Monday, 3 February 2014

WGU MBA Decision Analysis - The Entire Course

WGU MBA Decision Analysis - The Entire Course

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DA_Task4.PPX

This is the decision tree for Shuzworld’s decision about opening a new store. According to the case study, the stand-alone store would see profits of $700,000 if there was a favorable market and losses of $400,000 if the market was unfavorable. The mall store would see profits of $300,000 with a favorable market and losses of $50,000 if there was an unfavorable market. There is a 50/50 probability on both of these choices for favorable/unfavorable market. Not opening a store would see no profits nor losses.

However, the company is considering purchasing market research, which could have a positive impact or a negative impact on the market. They could also decide to not purchase market research, which would have no impact on the market. Purchasing market research would cost $20,000, and it has a 60% chance of showing a favorable market and a 40% chance of showing an unfavorable one. If the survey is positive, the chances of having a favorable market go up to 70%, and if it is negative, the chances of having an unfavorable market increase to 80%.

Entering this data into POM for Windows, the choice to make becomes obvious. The highest EMV (Expected Monetary Value) is with the decision to conduct the market research study. Following that decision to the next decision, the next highest EMV is with the stand-alone store. The best “chance” actions along that line are that Shuzworld will have positive survey results and have a favorable market.

This data was calculated using POM for Windows. The Decision Analysis Module was chosen, with the Graphical Decision Tree being selected. This was the proper decision tool because it allowed for a visual representation ofShuzworld’s choices. It clearly labels the options, and displayed the recommended path in blue. This decision tool was also able to calculate Expected Monetary Values based on either maximizing profits or minimizing costs. Since the information given in the case study was for profitability, maximizing profits was the option chosen.

The decision tree was designed based on the figures that I received about whether or not to build a stand-alone store, a mall store, or whether the company should do nothing in this market based on the projected figures. The decision tool’s analytical attributes reveal that with a 50% probability of an unfavorable and favorable markets, or states of nature, we can use this tool to help analyze whether or not to proceed with a proposed project. Once we know the numbers from the states of natures, we can determine the expected monetary value, or EMV for the state of nature. This is determined by multiplying the probability by one state of nature, plus the product of the probability by the other state of nature. For the Auburn Stand Alone project, the probability is 50% and the favorable market is $700,000. The unfavorable market is a loss of $40,000. So the EMV is (.5)(700,000) + (.5)(-40,000) which is $320,000. The Auburn Mall Store’s EMV would be (.5)(300,000) + (.5)(-50,000) which is $125,000. The EMV of doing nothing is, of course 0. This was all based on doing no survey. The top portion of the tree is conducting a $20,000 dollar market survey and watching those probabilities change based on the new data. The best decision is to chose the project that produces the highest EMV, in this case, it is my recommendation conduct a market survey and chose the Auburn Stand Alone store. Based on the survey results, the probabilities have changed based on the outcomes. All of these changes contribute to the changes in the EMV which is what we are analyzing to determine which store to proceed with. I chose the decision analysis tool in POM for Windows because it allowed for the most manipulation of the data to produce the desired outcome. Two things that should be considered when determining the site for the new store should be the states of nature, and what their expected monetary values are. It also lays information out in a graphical form which makes it easy to interpret.

Using the decision tree helped me to make decisions by using large amounts of data to interpret the data most efficiently. When you have to make a decision and there are various outcomes and different probabilities and inputs, I felt that it was best to use the decision tree. This software calculates the EMV as you input probability and profit or loss. This tool in POM can be helpful when information is needed quickly and without calculating this information by hand. When deciding on where to build a new location, there are environmental factors that must come in to play as well as profitability. One major thing I considered was the size and cost of the building and how cash flow is very important to the success of the business. It is also important to consider whether to lease or buy a site, how much building materials will cost, and how much this will affect net cash flow. For example, will the building appreciate in value? What is the net present value of the building in 10 years? There are so many things to consider. Another thing to consider is how the city government regulates zoning laws. Is there a piece of equipment that is too large for the building being considered? Will there be a back door to allow for shipments and if so is there enough room for the driver to get back there? Is there a regulation on how long the driver may be parked in that spot based upon traffic? What color do the lines on the ground have to be in your city to signify handicap? There are a multitude of things to analyze making the decision analysis tool the most appropriate tool to use in this scenario.

Two important factors to consider when evaluating locations are the proximity of the store to its market and the proximity of its store to suppliers (Heizer & Render, 2011).

For a company like Shuzworld, it is going to be vital to their success that they are located next to their market. With the number of shoe stores in existence, many customers are likely to go to whichever one is closest. Shuzworld needs to ensure that they have tapped into the shoe-buying market by being as close to it as possible. Placing their store in a location close to customers would be much wiser than building a store far away from a town. As can be seen in the map on the slide, the recommended stand-alone store along Route 20 is the closest option to the Auburn market. Their proximity to the market will be good if Shuzworld accepts the stand-alone store recommendation.

The proximity of a store to its suppliers is also important. In the case of Shuzworld, the suppliers are the Shuzworldproduction facilities and warehouses. It is unknown how close these facilities are to the proposed Auburn location. However, the company will need to ensure that the costs of shipping shoes to the new store will not whittle away at the profits. Transportation costs can be quite high if the store is located too far away from the supplier.

There are two project techniques that Shuzworld can use for the upgrade of their store in Bellevue: PERT (Project Evaluation and Review Technique) and CPM (Critical Path Method).

PERT and CPM are very similar, because they both use the same six basic steps. These steps are:

1. Define the project and identify the breakdown of the work.

2. Determine the relationship between activities.

3. Draw out the “network” that connects all those activities.

4. Determine and assign both time and cost to each activity.

5. Determine the critical path (discussed on next slide).

6. Use all this information to help plan and control the project.

The difference between PERT and CPM is that CPM assumes that one time estimate will be correct. PERT uses three different time estimates for each activity, which gives calculations for standard values and standard deviations. The PERT techniques are used in the presenter's notes on the following slide (Heizer & Render, 2011).

The critical path is the longest path through a project’s network of activities. PERT is the appropriate decision tool to use for determining the critical path, because there are three different time estimates gives for each activity. Shuzworld’scritical path for the upgrades to their Bellevue store is shown above. This critical path shows the longest amount of time it will take for the project to be completed, which is 108.2 days. Activity D is not part of that critical path because it has slack of 19.27 days and will not delay the project if the activity is delayed.

The company needs to know how many days to plan on if they want a 95% likelihood that they will finish the project within that time frame. This problem can be solved with the following equation: Due Date = Expected Completion Time + (appropriate area under the normal curve x project standard deviation). In order to solve this, the Normal Table in Appendix 1 has to be consulted to determine the value of Z (area under the normal curve) (Heizer & Render, 2011). The closest Z-value to 95% without going over is 1.64. This number is then plugged into the equation. The due date is equal to 108.2 + (1.64 x 8.46), which gives an answer of 122.07. This means that Shuzworld needs to plan for 123 days if they want a 95% likelihood of finishing the project within the time frame.

It is possible for Shuzworld to crash this time in order to meet their grand opening. If they crash the entire project, the crash time is 63.2 days, with a cost of $12166.67. However, the company only needs to crash by five days. To crash by 5 days, the company should crash Activity I, for a total cost of $2,500 ($500 per day). Although Activity D has the same crash costs, it cannot be crashed because it is not on the critical path. Crashing Activity I would be the best way forShuzworld to ensure that their store is ready for the grand re-opening in time.

Shuzworld has been having difficulties with their reordering/restocking at their Baltimore store. Their daily demand for cases of shoes runs between seven and twelve cases. When placing an order, there are varying lead times, anywhere from one to three days. The company has provided the frequency of case demand for a period of 200 days. They have also provided a frequency of lead times for a period of 40 days. Shuzworld would like to know a technique that they can test and see if reordering 30 cases of shoes whenever the inventory reaches 12 or lower will be effective or not.

This decision can be made using a Monte Carlo simulation. A Monte Carlo simulation is one that is uses random numbers in the evaluation, because many factors are based on chance (Heizer & Render, 2011).

A simulation of the Baltimore store shows that this store has an average demand of 10.5 cases per day. It would be wise to remember that this average demand is based on random numbers that provide simulated demands.

The Monte Carlo simulation shows how the Baltimore store will be able to handle their inventory if they reorder 30 cases of shoes whenever that inventory drops to twelve or below. Days 1-5 do very well, with no lost sales. Day 3 ends the day with only one case of shoes in their inventory, which cuts it pretty close. However, the big problem is on Day 6. The store had an ending inventory of 9 cases on Day 5, so they reordered. The simulation gave them a lead time of 2 days. This was not soon enough, and on Day 6, the store shows a zero ending inventory, with three lost sales. Although not shown on the simulation, Day 7 will also see lost sales, because the shipment will not be received until Day 8.

This one simulation shows that reordering 30 cases will not work for the store when the inventory gets to twelve cases or below. It should once again be noted that this is just one simulation. A company should ideally run this simulation numerous times with random numbers, in order to get a more accurate picture (Heizer & Render, 2011). It could be discovered that reordering 30 cases when inventory hits twelve actually would work, and that this simulation just received a very pessimistic set of random numbers. It would be wise for the Monte Carlo simulation to be ran numerous times before the Baltimore store manager changes his reordering plan.

WGU - Supply Chain - The Entire Course - All 3 Tasks

WGU - Supply Chain - The Entire Course - All 3 Tasks

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Task 1

Supply Chain Management

Simulation Analysis (B):

Utilizing pro-forma balance sheets revealed that I was too conservative in my initial

approach. My market share was 98% in the traveler series but dismal in the workhorse line. My

decision to invest $400,000 into a certificate of deposit was a critical error. I should have opened

an office in Europe sooner to maintain market share.

Pro-forma financial statements are critical to determine the outcome of previous

decisions. After my third quarter my error was to not completely analyze my financial

statements. Earlier, in the second quarter, I had went from a negative $394,000 to a positive

$493,749. This gave me confidence in my traveler line and since I was only at 4% market share

with the workhorse line – I dropped the line completely. I made the decision after reviewing

analysis of my profit and loss statements. I viewed this as a low profit item that was taking away

from our cash assets that could be best used to catapult our traveler line

My initial goal was to gain market share and defend it. I gained market share but did not

keep it. My conservative approach early in the simulation did not allow me time to defend my

98% market share. I analyzed competitors and they were gaining ground against me.

Competitive Posture
X	build a market position and defend it
X	take the lead and keep it
	be first to market
	be the leader in all things
X	be a fast follower, imitate smart competitive moves

In the 3rd quarter the pro-forma statement guided me with my decisions. I admittedly did not see that although I decided to incur the tremendous expense of opening another office, hired more sales and support people – I did not place them in the new office.

World Market
			Quarterly Training Costs
			3,000	2,000	4,000	3,000
City	Annual Compensation	Total Sales People	Service Support	Workhorse	Mercedes	Traveler
NY-NorthAmerica	53,021	6	2	2	1	1
Paris-Europe	53,021	0	0	0	0	0

Total number of sales people in the prior quarter:

My pro-forma cash flow statement indicated that in the 4^thquarter we went bankrupt.

Opening Sales Offices:
Tokyo-Asia, Paris-Europe

Sales People:

Top of Form

World Market
			Quarterly Training Costs
			3,000	2,000	4,000	3,000
City	Annual Compensation	Total Sales People	Service Support	Workhorse	Mercedes	Traveler
NY-NorthAmerica	77,497	10	2	0	4	4

Adequacy of funds (B 1):

My initial decision of the investment of $400,000 into a certificate of deposit was too

conservative. In the second quarter I cashed in the certificate of deposit to pay off the emergency

loan. My goal was to ensure adequacy of funds. This decision was critical in my decision to stay

solvent while increasing market share. In lieu of saving cash, I should have invested in other

markets earlier. It takes an entire quarter to set up a new office. If you make an error as I did with

staffing, you need time to correct the error.

In the first quarters my sales people were averaging over 200 sales per quarter and in the

final quarter they were only selling 100. I ended the simulation with nearly $4 million in unsold

computers. If I had realized my error earlier, in the final quarter, I could have decreased

advertising, sales and support people and made a nice return on investment. There would not

have been unsold inventory.

Supply Chain

Task 2

A. As you prepare to respond to prompts 1 to 4 shown below, you should reflect upon and analyze your simulation results. Consider the following in your analysis:

• Your actions during the simulation

• The relationship between your actions and your simulation results

• Your success compared to other competitors

• Alternatives to your actions that could have produced better results in the simulation

With an ambitious goal of having the largest market share, I made conservative lean

decisions early in the simulation that were impossible to overcome later in the simulation. With a

conservative approach, then an aggressive ending, one small error was disastrous for the

company in the final quarter.

My initial actions in the simulation gave me 98% market share of the traveler

line. My indecision about expanding to other markets resulted in a major loss of market share. In

my analysis of my competitors, I made decisions similar to theirs in my quest to defend my

market share because they were increasing and I was losing market share.

One decision I made was directly from analyzing my competitors. I noticed that they

were remunerating their employees greater than me. I compensated my employees greater than

my competitors and the simulation gave me back market share. Utilizing pro-forma balance

sheets was the evidence that I was too conservative initially. I enjoyed a 98% market share in

the traveler series but only 4% in the workhorse line. I decided to drop the workhorse line and

concentrate on the traveler. My success compared to my competitors was excellent until I made

one fatal error of not staffing the offices once I did expand. I learned that heavy investment has

to account for errors and that you need time to recover.

The greatest error in my actions was in retrospect, not expanding sooner.

A1. Explain how you determined your brand design decisions.

My design of all three computer models was based on utilizing all of the information I

was given. I was provided with the profit margin, the cost of adding features, the needs of

each type of user, the price point and the demand. Ultimately, I decided to offer computers with

all available capabilities at a lower price. This decision was critical because I initially

experienced a tremendous market share of 98 % but only on one model line. My gross profit

was tremendous because of my large market share and the profit potential in this particular line.

The simulation offered the option of a rebate. I designed the three computer models with

all available features and capabilities demanded. In a assembly line situation the cost of adding

features and capabilities is not that expensive. I offered the computers and advertised them as

the best available on the market. I had a high price to set a value then added a large rebate that

made the consumers purchase price less than my competitors. The simulation granted me the

largest market share.

My design of the two computer models that were not selling well was loaded with

features and capabilities. It did not sell well, I concluded that my inability to advertise it

effectually. Without additional offices I was limited to my exposure ability. My competitors had

immediately expanded, therefore they could legally advertise more effectually by offering a

feature demanded- service. The simulation obviously liked the service and availability feature

more than my additional features so I lost market share.

I eventually based my brand design decisions on the needs and type of customers I was to

target. However, it was clear in the early stages of the simulation that I did not utilize the

information provided to target a group of users. I made the error of mass producing without

understanding my strengths and developing a target customer base. It was not until the products

were actually used before having the ability to evaluate the value of the merchandise. As the

product group expanded and customers made their choices from the accessible brands, consumer

observations ensued and the comparative functionality of the existing features became more

transparent.

In selecting my brand designs, I felt it would be worthwhile to review the market profile

for each segment. I then took each section of the analysis and went over the individual

characteristics of each segment. I looked for different examples between the segments. I created

three brands initially based on the rank order of the benefits sought and the importance of the

benefit for a particular segment. As previously mentioned, two of my brands performed poorly

in the second quarter. In the third quarter, after comparing my decisions with my competitors, I

decided to revitalize my image by eliminating the two brands that were wasting resources.

Although, I felt this was somewhat risky at this stage, moving forward without this change was

not an option to me as I analyzed my prior approach and compared to the successes of my

competitors sales strategy and marketing.

A2. Discuss whether you would change the target markets you selected.

With the profit margin consideration in the traveler being much higher than the other

models and my high market share, I would never have started with three models as suggested. If

the opportunity to do the simulation again, I would have actually targeted a market. I was

looking for market share and that made me actually not target a market but produce lots of

unsold computers. From this simulation and this question, I learned that a new manufacturer

should not try to be a perfect fit for every consumer. A new business should have a target market,

capture it, retain it and then expand.

Task 3

1. A. supply Chain Strategy

Analyze whether a Keiretsu network, a virtual company, a vertical integration, or a different supply chain strategy should be adopted.

Keiretsu Network: Being forward thinking, and realizing the importance of long term partnering, I am recommending the adoption of a Keiretsu strategy as it is a network defined as part collaboration, part purchasing from few suppliers, and part vertical integration (Heizer & Render). The Keiretsu strategy encompasses four key dimensions of supply chain which are: information integration, workflow coordination, synchronization and new business models. Information integration refers to the degree of sharing of demand information, inventory status, capacity plans, and shipment schedules. Workflow coordination refers to streamlining workflow activities across various members in a supply chain in order to achieve efficiencies from increased order accuracy and timely shipments of our products. Synchronization entails joint design and execution of plans for forecasting and replenishment –also otherwise referred to as collaboration. Finally, new business models show how entire supply networks may jointly create new products, pursue mass customization and successfully compete in new markets.

This type of supply chain integration refers to both internal and external integration (i.e. joining internal company business segments while integrating with outside companies). Internal supply chain integration is the achieves the partnering of otherwise separate activities such as purchasing, warehousing, transportation, distribution, and customer service into a single enterprise. It should be considered to what extent other companies have achieved integration and coordination of internal functions and look at ways to improve those efforts by building on their success in this area. At the same time, it should be noted that decreasing marginal returns have forces some companies to focus outside their companies parameters to find increased value opportunities by collaborating with adjacent supply chain partners.

The other supply chain options include the following:

Vertical Integration. I did not choose this strategy as an appropriate strategy for our project because of the risk associated with it that leads to increased costs. Vertical integration provides the ability to produce goods or services that were formerly purchased and can provide an opportunity for a company to lower its overall costs by producing a product within the company to eliminate a member of the supply chain. Ideally, the fewer members in the supply chain will ultimately leads to better profit margins for the company. For example, when dealing with a supplier, the company has to pay the supplier to cover costs and maintain a profit. This works well if the company has the necessary capital to incur the costs of production. The advantage of vertical integration is that a company produces the product themselves, and does not have to pay the premium associated with buying it from an outside supplier.

Although costs are generally higher for production in the short-term, vertical integration can save the company money in the long-run. However, vertical integration requires that a company to take on extra responsibility. For example, if management does not have the expertise to run new operations, they will eventually fail and therefore this method is associated with a higher degree of risk as the amount of capital tied up in internal expense can greatly increase. So, although vertical integration may seem like a good idea, the potential for management to get overzealous in the estimation of existing capital available for new ventures might occur.

Virtual Company. I did not choose this strategy because although virtual companies are a great idea for smaller organizations, smaller companies generally don’t have the resources to purchase all of the manpower and materials necessary for short-term projects. Additionally, virtual companies must rely on many supplier relationships to provide services on demand which does not support the just-in-time system.

An advantage of virtual companies is that they have fluid organizational boundaries that allow them to create a unique enterprise to meet changing market demands. This is achieved by companies forming networks with other companies resulting in all companies dependent on each other. For example, each member within a network performs essential functions to a project such as technology systems and financial services being major contributors to the network.

Virtual companies work well for short-term projects of a company, however, it does not make sense to fully integrate new operations for just one project. The cost is not worth it for the company because they may need to use many different operations depending on the particular project. (For example, a software system that provides links to consulting services, technology, and integration skills). Information technology is a huge cost for a business and many smaller companies are not ready to incur all of these costs.