KENDALL CRAB AND LOBSTER INC.€¦ · KENDALL CRAB AND LOBSTER INC. Dr. Ioannis N. Lagoudis...
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Transcript of KENDALL CRAB AND LOBSTER INC.€¦ · KENDALL CRAB AND LOBSTER INC. Dr. Ioannis N. Lagoudis...
The Problem• Ο Jeff Daniels has to find the best way to ship
lobsters to the customers of Kendal Crab and Lobster Inc (KCL) given the upcoming storm in Boston.
MethodologyI. Data documentationII. Data filteringIII. Decision Tree designIV. Problem solving
KENDAL CRAB & LOBSTER Data Documentation
1st Paragraph1. The storm is expected to hit Boston around
17:00 hours.2. There is 50% the storm to reach Boston.3. In 1/5 (20%) of the such cases Logan
International Airport (LIA) is forced to close.
2nd Paragraph4. In 1998 sales reached $22 million.5. Jeff Daniels is the director of Overnight
Delivery Operations Department which is the most profitable part of the business.
3rd Paragraph6. During the transportation process the lobster
must be alive.7. The lobster can be alive between 36 and 48
hours given he is packaged properly.8. Transportation in either by air or truck.
4th Paragraph (i)9. Following day orders must be placed by 17:00 hours
latest.10. Average daily demand is 3,000 lobsters.11. At 17:30 lobsters are transported by truck to (LIA)12. At 18:30 lobsters are shipped by air with United
Express (UE) at a DC near Washington D.C.
13. At the DC lobsters are sorted and they reach the end customer either by truck or air around 10:00 hours.
14. The price of lobster is at $30 per piece.15. The profit per lobster when shipped by UE is
$10.
4th Paragraph (ii)
16. When an order does not reach the customer:n There is a refund policyn A coupon of $20 per lobster is given
17. Based on historical data 70% of the customers use the coupons.
4th Paragraph (iii)
18. First choice when LIA is shut down is to use the Massachusetts Air Freight (MAF) which must be informed before 17:30.
19. The cost of using MAF based on data is:n $13 per lobster in 67% of the casesn $19 per lobster in 33% of the cases
5th Paragraph (i)
20. The second alternative if LIA is not in operation is to cancel the orders.
21. The associated costs are:n $1 per lobster if it has not been packagedn $1,25 per lobster if it has been packaged
5th Paragraph (ii)
22. The third solution if LIA is closed is to use the truck company Eastern Parcel Delivery (EPD)
23. Using EPD has two constraints:n KLC must commit to EPD before noon (12:00).n The associated cost when using EPD is much higher compared
to UE.
5th Paragraph (iii)
24. Based on past data the cost of using EPD is as follows:n $4 per lobster for 50% of the casesn $3 per lobster for 25% of the casesn $2 per lobster for 25% of the cases
5th Paragraph (iv)
25. If Jeff decides to use EPD he must act immediately (12:00pm).
26. If Jeff does not decide to use EPD then he has to wait until 17:30 when:n If LIA is not affected by the storm he can use UEn If LIA is affected by the storm he will use MAF
6th Paragraph
KENDAL CRAB & LOBSTER Data Filtering
• Use of EPD before 12:00• Use of UE or MAF before 17:30
Time related information
I. If the storm does not affect Boston:1. Use of UE through LIA
II. If the storm does affects Boston:2. Use MAF3. Use EPD
Transportation
Financial DataStorm %
Affects Boston 50
Does not affect Boston 50
LIA %
Operational 80
Non-‐operational 20
Coupon %
Use 70
Do not use 30
MAF Costs %
$13/lobster 67
$19/lobster 33
EPD Costs %
$4/lobster 50
$3/lobster 25
$2/lobster 25
Profit/lobster $10
Lobster demand 3,000
Coupon value $20
Order cancellation (Unpacked) $1.00
Order cancellation (Packed) $1.25
KENDAL CRAB & LOBSTER Decision Tree
12:00
Send coupons
Use EPD
Pack & wait Until 17:30
High cost $4
Middle cost $3
Low cost $2
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0.25
0.25
Decision at 12:00
17:30
Use UE0.50
0.50Storm
No Storm
Use UE
0.20
0.80
LIACloses
LIADoes not close
Use MAF
Give coupons
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.33
0.67
Decision at 17:30
12:00
Give coupons
Use EPD
Pack and wait until 17:30
High cost $4
Medium cost $3
Low cost $2Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0,.5
0.25
17:30
Use UE0.50
0.50
Storm
No storm
0.20
0.80
LIADoes not close
LIACloses
Use UE
UseMAF
Give coupons
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.67
0.33
Decision Tree
KENDAL CRAB & LOBSTER Solving the problem
• Profit per lobster = $10• Demand = 3,000• EMV(MAF) = [(-$3*3,000)*0.67]+[(-$9*3,000)*0.33) = -$15,000
High cost$19
Low cost $130.67
0.33
-‐$15,000
EMV for MAF
• Coupon per lobster = $20• Cost of packing = $1.25• Demand = 3,000• EMV(Coupon)=[(-$21.25*3,000)*0.70]+[(-$1.25*3,000)*0.30]=-$45,750
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30-‐$45,750
EMV for Coupons (packed)
12:00
Give coupons
Use EPD
Pack and wait until 17:30
High cost $4
Medium cost $3
Low cost $2Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0.25
0.25
17:30
Use UE0.50
0.50
Storm
No storm
0.20
0.80
LIADoes not close
LIACloses
Use UE
Use MAF-‐$15,000
Give coupons-‐$47,750
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.67
0.33
-‐$15,000
MAF Decision
• Profit per lobster = $10• Demand = 3,000• Use MAF = -$15,000• EMV(LIA) = [(-$15,000*0.20)+($10*3,000)*0.80] = $21,000
0.20
0.80
LIADoes not close
LIACloses
Use UE
Use MAF
$21,000
EMV for LIA
12:00
Give coupons
Use EPD
Pack and wait until 17:30
High cost $4
Medium cost $3
Low cost $2Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0.25
0.25
17:30
Use UE0.50
0.50
Storm
No storm
0.20
0.80
LIADoes not close
$24,000
LIACloses-‐3,000
Use UE
Use MAF-‐$15,000
Give coupons-‐$47,750
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.67
0.33
-‐$15,000$21,000
LIA
• Profit per lobster = $10• Demand = 3,000• EMV (LIA) = $21,000• EMV(Storm)=[($21,000*0.50)+($10*30,000)*0.50]=$25,500
17:30
$21,000
Use UE0.50
0.50Storm
No Storm
$25,500
EMV for Storm
12:00
Give coupons
Use EPD
Pack and wait until 17:30
High cost $4
Medium cost $3
Low cost $2Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0.25
0.25
17:30
Use UE0.50
0.50
Storm$10,500
No storm$15,000
0.20
0.80
LIADoes not close
$24,000
LIACloses-‐$3,000
Use UE
Use MAF-‐$15,000
Give coupons-‐$47,750
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.67
0.33
-‐$15,000$21,000
$25,500
Storm
• Profit per lobster = $10• Demand= 3,000• EMV(EPD)=[($6*3,000)*0.50+($7*3,000)*0.25+($8*3,000)*0
.25]=$20,250
High cost $4Medium cost $3
Low cost $2
0.500.25
0.25$20,250
EMV for EPD
• Cost of coupon per lobster = $20• Cost of packing = $1.00• Demand = 3,000• EMV(Coupon)=[(-$21*3,000)*0.70]+[(-$1*3,000)*0.30]
=-$45,000
Coupons redeemed $20
Coupons are not redeemed $0
0.70
0.30-‐$45,000
EMV for Coupons (Unpacked)
12:00
Give coupons-‐$45,000
Use EPD$20,250
Pack and wait until 17:30
High cost $4
Medium cost $3
Low cost $2Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.50
0.25
0.25
17:30
Use UE0.50
0.50
0.20
0.80Use UE
Use MAF-‐$15,000
Give coupons-‐$47,750
High cost $19
Low cost $13
Coupons redeemed $20
Coupons not redeemed $0
0.70
0.30
0.67
0.33
-‐$15,000$21,000
$25,500
Final Decision
Storm$10,500
No storm$15,000
LIADoes not close
$24,000
LIACloses-‐$3,000
KENDAL CRAB & LOBSTER Sensitivity Analysis
Question• What is the probability that will force Jeff to
change his decision?
Solution• The following must be true– EMV > EPD = $20,250– 0.5($30,000) + 0.5 [p(-$15,000) + (1-p)$30,000] > $20,250
ó0.5(-$45,000p) > $20,250 – $15,000 – $15,000ó -$22,500p > -$9,750 ó p < $9,750/$22,500ó p < 0.433
When the probability of LIA to close is higher than 43.3% then EPD should be preferred.
Thank you!
