Essay about Avalanche Corporation - Strategic Recommendation

2343 Words Feb 18th, 2013 10 Pages
Avalanche Corporation
Decision Analysis and Strategic Recommendation

Table of Contents Table of Contents 1 Overview 2 Question 1: Production Strategy 2 Question 2: Sensitivity Analysis 3 Question 3: Influence of Outside Vendor 5 Question 4: Alternative Risk Profiles 6 Question 5: Are Fantastic Forecasters Worth It? 7 Conclusions 7 Appendix 8 Figure A: Precision Tree (Question 1) 8 Figure B: Cost Calculation Table 9 Figure C: Profit Calculation Table 9 Figure D: Tornado Graph 10 Figure E: Tornado Graph Data 11 Figure F: Spider Graph 12 Figure G: Decision Tree (No Outsourcing Available) 13 Figure H: Sensitivity of Decision Tree (with Data) 14 Figure I: Strategy Region (with Data) 15 Figure J:
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This infers that Avalanche Corporation’s profits are vulnerable to minor changes in demand. Furthermore it appears that for higher demand quantities the optimal strategy slowly shifts from batch processing towards line production. This is expected due to the fact that the higher fixed costs of line production become negligible as demand increases. For high demand the turning point is at about 38,000 units and for low demand the turning point is about 27,000 [Figure P & Q]. Another important factor in terms of EMV sensitivity is outsourcing cost. In general as the outsource cost decreases Avalanche Corporation is encouraged to employ a low production strategy which favors implementing batch production. This is because a lower production strategy equates to unsatisfied demand which is the made cheaper to fulfill as outsource costs decrease. This is evident in the outsource strategy region graph where batch production is considered the most effective strategy for any outsource cost lower than about $77 mainly due to the lower fixed costs that are associated with batch production [Figure R]. Unlike outsource costs, clearance price have barely any effect on batch production with a variance of 50%. However, clearance prices have a large impact on line production values as higher clearance prices favor a switch to a high production strategy. This is visible in the clearance price

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