Decision trees can be used to determine the best possible alternatives and potential payoff for a new product or solving other management problems where uncertainty is present.
Your task is to build a decision tree based on the following scenario.
OM, Inc., a manufacturer of widgets, is considering the possibility of producing a new super-duper widget. However, they cannot decide between using an automatic 3D printing manufacturing technique or producing the widgets by traditional methods. This new project will require OM, Inc. to either purchase a high-end 3D printer or hire and train four additional employees. The market for the new widget could be either favorable or unfavorable. Ultimately, OM, Inc. can also decide not to develop the new widget.
Sales for favorable customer acceptance would be 20,000 widgets selling for $1,900 each. With unfavorable acceptance, sales of the widgets would only be 4,000 widgets at a selling price of $1,900 each. The initial setup cost of the 3D printing system is $2,000,000; however, the hiring and training of the four new employees would cost only $400,000. In the end, manufacturing costs are $1,700 for each widget when manufacturing without 3D printing and $1,500 each when 3D printed.
The probability of favorable acceptance of the new widgets is .30; the probability of unfavorable acceptance is .70.
Before you start building your decision tree, review the How to Build a Decision Tree in Excel OM example presentation.
videos
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readings
Read the following chapters from your textbook, Operations Management: Sustainability and Supply Chain Management, 14th edition (Heizer, Render, & Munson, 2023):
• Chapter 5 – Design of Goods and Services
• Chapter 7 – Process Strategy
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