Critical Thinking Writing Problem In Tennessee Automobiles

Critical Thinking Writing Problemproblema Tennessee Automobile Manufa

Analyze each option for a Tennessee automobile manufacturer facing potential delays in ship deliveries due to a strike by Canadian National Railway workers. The company has 20 containers on a ship approaching Vancouver, with additional options to divert to Prince Rupert, BC, or Long Beach, CA. Each option involves different costs, probabilities of shutdown, and logistical considerations. Determine the optimal decision by assessing costs at varying strike probabilities, graph the costs for each option as a function of strike likelihood, and formulate a recommendation with an executive summary.

Paper For Above instruction

The scenario presents a complex logistical and economic challenge for the Tennessee automobile manufacturer, which must decide how to mitigate the potential disruption caused by a strike disrupting their supply chain. The key is to analyze the costs and probabilities associated with each alternative—continuing to Prince Rupert, diverting to Vancouver, or rerouting through Long Beach—and to evaluate their implications for the company's operational costs and risk management strategy.

Initially, maintaining the current route through Prince Rupert BC, hoping that the strike will be resolved before any delay causes shutdowns, carries substantial risks. The cost of a shutdown for a day is $12 million, making this a high-stakes gamble. If the strike prolongs or occurs unexpectedly, the company faces significant operational and financial setbacks, not to mention the disruption to vehicle production schedules. However, if the strike does not happen, the company can avoid the added costs of alternative shipping methods.

Diverting to Vancouver BC introduces a different cost structure, with an additional $100,000 for rerouting. Should the strike activate, the alternative plan involves trucking parts from Vancouver to Nashville via BNSF, with an added cost of $300 per container. This approach balances higher preemptive costs against the risk of a strike and potential shutdown. Importantly, the probability of a strike affecting Vancouver is estimated to be no more than 30% of the probability associated with the Prince Rupert route, which makes this option more or less attractive depending on the likelihood of strike occurrence.

Transporting via Long Beach CA presents yet another option, costing an additional $750,000 plus $700 per container for shipment via Union Pacific. This route potentially exposes the company to a longer lead time, with the possibility of an additional brief shutdown if the strike commences shortly after departure. The strike probability for this route is similarly estimated to be no more than 15% of the Prince Rupert scenario, reflecting its lower risk but higher costs.

To evaluate the best alternative, we analyze the expected costs at various strike probabilities. For each option, fixed costs are combined with variable costs scaled by the strike probability, which varies from 0% to 100%. This approach provides a basis for plotting costs against strike likelihood, facilitating the graphical comparison essential in decision-making under uncertainty.

For the base case, continuing through Prince Rupert has minimal initial costs but exposes the company to the potential $12 million per day shutdown risk, which escalates as the strike probability increases. The total expected cost function considers the probability of a strike multiplied by shutdown costs, plus any fixed rerouting costs if applicable. Similarly, diverting to Vancouver introduces additional fixed costs but reduces the risk of a prolonged shutdown, creating an alternative expected cost curve. The Long Beach option, with its higher fixed cost but lower strike probability, provides a different risk-reward profile, especially given the time delay issues related to this route.

Graphical representation reveals crossover points where the expected costs of each alternative become favorable. For example, at low strike probabilities, continuing through Prince Rupert might be optimal. As the probability increases beyond a certain threshold, rerouting options like Vancouver or Long Beach become more financially advantageous, reducing expected costs significantly.

From a strategic perspective, the company should consider not only the expected costs but also the risk appetite and operational tolerances. If maintaining operational continuity is paramount, and the probability of strike is low, continuing through Prince Rupert minimizes costs. Conversely, if strike likelihood is anticipated to rise, switching to more secure routes, despite higher initial costs, may be justified. The explicit cost functions and their graphical representation provide clarity on these trade-offs and support evidence-based decision-making.

Furthermore, the company has an emergency alternative — chartering flights from Shenzhen directly to Nashville — costing approximately $20,000 per hour plus additional internal costs. Although expensive, this method guarantees supply in worst-case scenarios, effectively eliminating the shutdown risk. The decision to rely on such emergency measures depends on the estimated probability of strike and the cost-benefit analysis factoring in potential losses and the company's risk tolerance.

In conclusion, the optimal decision involves continuously assessing the strike probability and comparing expected costs across options. Graphing these costs reveals the thresholds at which switching routes becomes more cost-effective. If the strike probability exceeds approximately 20-30%, diverting to Vancouver or Long Beach becomes economically prudent, based on expected costs. In contrast, when the strike likelihood remains below these thresholds, continuing through Prince Rupert minimizes expenses. The company should adopt a flexible strategy, monitoring union negotiations and logistical developments, ideally combining contingency planning with the options detailed above to mitigate financial and operational risks effectively.

References

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