Decision Analysis

Emerson Case
SYNDICATE – 4

Adhy Perdhana - 29318129

Jessica Octaviani - 29318058
Polmauli Sinaga - 29318041
Luthfi Farhana - 29318039
Maftuh Ihsan - 29318099
Rifqi Fuadi - 29318012
Rio Dharma Putra - 29317390
Sourcing Problem

Decision on sourcing of the Emerson “1895” ceiling fan subpacks for

upcoming 1988 fiscal year
With the reason:
1. Subpack Quality
2. Sourcing Flexibility
3. Currency Exchange Rate
Stage 1, identify the decision maker, in our
problem is the business owner

Ken Powers

Decision on sourcing of the Emerson “1895” ceiling fan subpacks for

upcoming 1988 fiscal year
Stage 2, identify the alternative courses of action,
in this problem are 7 possible locations.
1. Continue with current Taiwanese vendor
2. Change to alternatives Taiwanese vendor
3. Integrate assembly process in US
4. Establish sourcing in Mexico
Stage 3, identify the attributes with are
relevant to the decision problem
Criteria

Cost Benefit

Production
Labour
Turnover

Tools Quality

Government
Logistic
Policy

Investment
Stage 4, Measuring how well the options perform
on each attribute
Cost
Score
Alternatives Labour Cost Tools Logistic Investment
Labour Tools Logistic Investment
Option 1: Existing Vendor (Taiwan) 1,00 0 1 0 60 100 0 100
Option 2: New Vendor (Taiwan) 1,00 1 1 0 60 75 0 100
Option 3: Establish in US 4,00 6 4 0 0 0 100 100
Option 4: Establish in Mexico 0,44 6 2 1 100 0 80 0

Labour Cost : Ratio of Labour Cost between Location

Tools : Ratio of Investment for Tools
Logistic : Qualitative based on the number of Transportation
( 1: More Than 2 Mode of Transportation, 2: 1 Mode of Transportation, 4: No Transportation)
Stage 4, Measuring how well the options perform
on each attribute
Benefit
Alternatives Production Turnover Quality Political Risk

Option 1: Existing Vendor (Taiwan) 1 3 3

Option 2: New Vendor (Taiwan) 1 2 3
Option 3: Establish in US 4 3 5
Option 4: Establish in Mexico 3 1 4
Stage 4, Measuring how well the options perform
on each attribute
Exchange Rate
Year 1984 1985 1986 1987
Month 1 2 3 4 5 6 7
NT$ 39,87 39,77 38,1 35,69 35,14 34,96 34,36 32,98 31,89 31,03
Peso 201 317 600 911 975 1044 1115 1180 1259 1344
Stage 5 & 6, Determining weight of the attributes & Calculating aggregate of
weighted value
Cost
Score
Alternatives Labour Cost Tools Logistic Investment
Labour Tools Logistic Investment
Option 1: Existing Vendor (Taiwan) 1,00 0 1 0 60 100 0 100
Option 2: New Vendor (Taiwan) 1,00 1 1 0 60 75 0 100
Option 3: Establish in US 4,00 6 4 0 0 0 100 100
Option 4: Establish in Mexico 0,44 6 2 1 100 0 80 0

Original Weight
Labour Tools Logistic Investment
100 50 75 25

Normalized Weight
Labour Tools Logistic Investment
0,4 0,2 0,3 0,1

Score
Aggregate
Labour
Tools Logistic Investment Weighted Score
Cost
24 20 0 10 54
24 15 0 10 49
0 0 30 10 40
40 0 24 0 64
 Stage 5 & 6, Determining weight of the attributes & Calculating aggregate of
weighted value
Score
Alternatives Production Turnover Quality Political Risk
Production Turnover Quality Government Policy
Option 1: Existing Vendor (Taiwan) 1 3 3 0 100 0
Option 2: New Vendor (Taiwan) 1 2 3 0 60 0
Option 3: Establish in US 4 3 5 100 100 100
Option 4: Establish in Mexico 3 1 4 80 0 50

Original Weight
Production Turnover Quality Government Policy
30 60 10

Normalized Weight
Production Turnover Quality Government Policy
0,3 0,6 0,1

Score Aggregate
Production Turnover Quality Government Policy Weighted Score
0 60 0 60
0 36 0 36
30 60 10 100
24 0 5 29
 SMART-Stage 7
Provisional decision: trading benefit vs cost
Aggregate Weighted Score
Alternatives
Cost Benefit
Option 1: Existing Vendor (Taiwan) 54 60
Option 2: New Vendor (Taiwan) 49 36
Option 3: Establish in US 40 100
Option 4: Establish in Mexico 64 29

Benefit vs Cost
Since Emerson is very cost sensitive, the best
120
decision is establish assembly plant in Mexico
100 100

80

60 60

40
36
29
20

0
54 49 40 64
SMART-Stage 8
Sensitivity Analysis
We can do sensitivity analysis by considering the currency exchange rates that will impact to the
production cost (labour, material, tools, production investment)

Year 1984 1985 1986 1987

Month 1 2 3 4 5 6 7
NT$ 39,87 39,77 38,1 35,69 35,14 34,96 34,36 32,98 31,89 31,03
Peso 201 317 600 911 975 1044 1115 1180 1259 1344

The trend of exchange rates of Peso is getting weaker against US Dollars, So that in the future the cost
will posibly become lower
PPA for Emerson

Potential Consequence Possible Cause Preventive Contingent

Problem Action Action
High Inflation High Labour Inflation Rate Fixed rate for Move out from
Rate in Mexico cost up to 20% up labour wages Mexico
High Set up long
investment term contract
on Rent and
other
investment
High Set up long
production term contract
cost on Supplier
with fixed rate