Suzy Jones Is Trying to Decide Whether to Use One

question 58

Essay

Suzy Jones is trying to decide whether to use one or two suppliers for the motors than go into the chain saws that her company produces.She wants to use local suppliers because her firm runs a JIT operation.Her factory is located in a coastal town that is prone to hurricanes.She estimates 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 5%.Such a total shutdown would cost the company approximately $100,000.She estimates the "unique-event" risk for any of the suppliers to be 10%.Assuming that the marginal cost of managing an additional supplier is $12,000 per year,should Suzy use one or two suppliers?

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Definitions:

Totalitarianism

A political system in which the state recognizes no limits to its authority and strives to regulate every aspect of public and private life wherever feasible.

Segregation

The enforced separation of different racial groups in a country, community, or establishment, often discussed in the context of historical and modern social issues.

Economic Market

A system where buyers and sellers engage in the exchange of goods and services, often guided by supply and demand principles.

Anticommunism

Opposition to communism, often characterized by political and ideological resistance to countries or movements associated with communist ideologies.