Refer to Problem 7. After consulting with economists, government officials, and other supply chain experts, the vice president of supply chain for AMCO international was able to estimate the following probabilities for the three different states of nature:

P (Status Quo) = 0.2; P (Favorable) = 0.5; P (Unfavorable) = 0.3

1. What is the EV for each supplier, and which one is the best?

2. If AMCO hires a global supply chain expert to get additional information about the three different states of nature, how much is this information worth?

Data from problem 7

AMCO International, a major apparel retail company, has several stores in the United States and in countries throughout the globe. It imports most of its apparel products and garments from overseas suppliers. To improve its global supply chain operations, the company wants to contract with a single supplier located in one of the major ports around the world who can supply the majority of the apparel products it needs. The company is considering five major garment and apparel suppliers in the following major port cities: Chennai, India; Chittagong, Bangladesh; Manila, Philippines; Shanghai, China; and Jakarta, Indonesia. AMCO International has estimated the future profits (or loss) it may achieve will depend on a variety of future conditions (states of nature) including market conditions, exchange rates, quality of second and third tier suppliers, security issues, port capacity, and ship and container availability. These future conditions can be classified into three categories: status quo (no change), favorable, and unfavorable. Table F.22 summarizes the payoffs (in $ millions) from each of the overseas supplier for the three different states of nature.

Table F.22

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States of Nature Favorable Decision Alternative Unfavorable Status Quo Chennai Chittagong Manila $38 $40 -$17 $75 $22 $45 --$23 -$44 $27 $37 $60 $70 Shanghai $55 $40 -$32 Jakarta