Kryoneri Perfume Company is considering two alternatives for the supply of vetiver oil (an essential oil used in high-end perfumes). Alternative 1 is to use two suppliers located in Haiti, where half of the world’s vetiver oil comes from. Each has a “unique-event” risk of 5% and the probability of a “superevent” that would disable both at the same time is estimated to be 15% due to Haiti’s vulnerability to earthquakes. Alternative 2 is to use two suppliers located in Japan (another large producer of vetiver oil) where each has a “unique-event” risk of 1%, and the probability of a “super-event” that would disable both at the same time is estimated to be 2% due to Japan’s exceptionally great infrastructure developed after 1995 Kobe earthquake.

Estimate which alternative is better.

Problems S11.6–S11.9 relate to Managing the Bullwhip Effect lop6