Question

Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a “super-event” that might shut down all suppliers at the same time for at least two weeks is 3%. Such a total shutdown would cost the company approximately $400 000. He estimates the “unique event” risk for any of the suppliers to be 5%. Assuming that the marginal cost of managing an additional supplier is $15 000 per year, how many suppliers should Witt Input Devices use? Assume that up to three nearly identical local suppliers are available.

Answer 1

According to the information provide above

he probability in any year of a “super-event” that might shut down all suppliers at the same time for at least two weeks is 3% , So there is 97% chances with all permutation and combination that this will not happen that all the supplier shut down at same time and I prefer rather than managing the cost of additional supplier the philips has to make a minimum inventory so that if all the supplier shut there business together he use his inventory and if building inventory is not possible then Philips has to build one addiitional supplier because the chances is very less that all the supplier will actually shut there business together because of hurricanes, tornadoes, flooding, and earthquakes.