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Vladimir79 [104]
2 years ago
11

Suppose that the manager of a company has estimated the probability of a super-event sometime during the next five years that wi

ll disrupt all suppliers as 5%, and the probability of a unique-event that would disrupt one of them sometime during the next five years to be 10%. Supplier management costs during this period are $30,000 per supplier. The financial cost incurred if all suppliers are disrupted at the same time is estimated to be $2,000,000. Assume that up to five nearly identical suppliers are available. How many suppliers should the manager use?
Business
1 answer:
Inessa [10]2 years ago
5 0

Based on the financial cost incurred if supply is disrupted and the probability that this happens, the number of suppliers the manager should use is Two (2) suppliers.

<h3>How many suppliers should be used?</h3>

If 3 suppliers are used, the probability of disruption would be:

= Probability of super event + (1 - Probability of super event) x Probability of unique event^ number of suppliers

= 5% + (1 - 5%) x 10%³

= 0.145

The payoff would be:

= 2 million x 0.145 + 30,000

= $191,900

With two suppliers:
= 2 million x (5% + (1 - 5%) x 10%²) + 30,000

= $169,000

With one supplier :

= 2 million x (5% + (1 - 5%) x 10%) + 30,000

= $320,000

The lowest cost is with 2 suppliers so this should be chosen.

Find out more on probability of disruption at brainly.com/question/16625463.

#SPJ1

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