Decision Analysis Task 3 Essay

2878 Words Apr 7th, 2014 12 Pages
MEMO
Shuzworld Recommendations

12/3/2012

Consultant

A. Recommend which method (i.e., using reconditioned equipment, purchasing new equipment in its Shanghai plant, or outsourcing to another manufacturing operation) Shuzworld should use for the manufacturing of its sneakers, utilizing the appropriate decision analysis tool.

Shuzworld has decided to produce the Samba Sneaker, a bright colored shoe marketed for teens and pre-teens. The company needs to decide which would be more economical: reconditioning their existing equipment for this production, buying new equipment, or outsourcing the production to China. Reconditioning has a fixed cost of $50,000 and a variable cost of $1,000 for every 1,000 sneakers produced.
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Further points to recommend reconditioning would be that the operating director of the plant, Alistair Wu, does not like outsourcing. The company states that he is very particular about any production that is not in-house. Also, buying new equipment for this new product would be unwise, as it is unsure how it will perform in the future market of consumers as well as the project only planned for one quarter.

The numerical data and points taken from the case study all point towards the optimal choice to be reconditioning the existing equipment.

This data was calculated using POM for Windows. The Breakeven/Cost-Volume Analysis module was used because it had the option for the cost-volume analysis. This was appropriate because there was no given data for revenue or sales projections. The cost-volume analysis needed only the fixed and variable costs, and the volumes associated with those costs.

I chose the decision analysis tool breakeven cost volume analysis because the tool allowed for ease of use and also had parameters set up to account for the different types of costs and the number of options. In this case, we had 2 costs, fixed and variable, and 3 different options, reconstructing old equipment, purchasing new equipment, and outsourcing. This decision analysis tool allowed me to construct a crossover chart which showed the points at which the costs of the options demonstrated an advantage over the other.

A1. Submit a

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