Use this information, to advise Cyclonic on their decision. Prepare an Executive Summary report (approximately 1 to 2 pages) that summarizes your findings and recommendations. Be sure to include the following in your report:
(a) Organize the available data on cost, revenue, and probability estimates in a table.
(b) Set up a decision tree to model the scenario presented to Cyclonic. I want to see two versions of your decision tree.
First, show the tree with the algebraic formulations as your payoffs before you run the simulations (eg. example= $250*MIN(D, Q) – $150000 – $130Q)
Second (completed after step (c)), after running simulations and optimization, show the decision tree with your payoffs (average profit calculated from the four simulations). Show your solved decision tree.
(c) Use simulation to estimate the expected profit generated for each option under both weak and strong demand scenarios. HINT: for the simulations, use 500 samples each. You will have four worksheets with simulations – OUTSOURCE-WEAK; OUTSOURCE-STRONG; MANUFACTURE-WEAK; MANUFACTURE-STRONG)For the manufacturing option, use Optimization to calculate the optimal number of spin bikes to produce for both the weak and strong demand scenarios.
(a) Provide a recommendation for Cyclonic including their decision to continue to outsource or vertically integrate the manufacturing. Included the expected return/cost for the decision based on your decision tree (and simulation and optimization values).
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