Data Driven Decision Making ECN 632 Module 4 Van Zandt Technology Case Study Assignment You have been asked to determine what Van Zandt Technology should bid in the contract for specialized individual data storage devices (thumb drives) for the U.S. Department of Defense. The minimum bid is a delivery of 600 drives per day. The winning bid will be the company that guarantees the largest number of drives per day. The Dept. of Defense will pay $23.50 per drive. The company believes that it will have a $3.80 profit margin at this price. For each day the company does not meet the guarantee, it will be subject to a $5,000 fine. The company is not able to inventory drives. It must turn over all drives produced on a given day. The company is willing to enter into the contract if it can expect to earn a profit of $1,000 per day. Your report should be 1 to 2 pages in length and include your recommended bid, as well how you reached this number. Include the number of drives that we will guarantee, the percentage of time we will be faced with a penalty, and how this results in an average profit of $1000 per day. Data Driven Decision Making ECN 632 Module 4 Van Zandt Technology Van Zandt Technology is a manufacturer of specialized data storage devices located in Massachusetts. They are considering bidding for a U.S Defense contract to make thumb drives that are resistant to heat, moisture and sand. The drives would be used by soldiers in battle under a variety of conditions. The RFP (request for a proposal) asks companies to bid how many of the devices they are willing to guarantee for delivery each day. The minimum bid is 600 per day. The winning bid will go to the company that promises the largest number of drives. The government has already determined the price they are willing to pay for each thumb drive and the companybelieves it will turn a profit of $3.80 per drive at the government price. There are three other firms that Van Zandt Technology is competing against. Stevie Van Zandt, the CEO, is keenly aware how important it would be for the company to be awarded the contract, but she also knows that promising more than the company can deliver does not make sense, since the government will impose a $5000 fine for any day that Van Zandt is unable to meet its bid guarantee. In addition, the company will not be able to stockpile thumb drives. The federal government requires that all thumb drives produced in a given day be delivered to the local military base. Stevie Van Zandt has asked you to be in charge of making the bid. You have enlisted the help of a number of key company staff. Roy Bittan, Director of Operations, reports that they are currently producing a similar version of the thumb drive geared toward hunting and skiing enthusiasts. The product is being sold in a number of big box hunting stores such as Gander Mountain. The retail competition for these outdoor storage devices has been very intense and the company has a much lower profit margin on the product. Therefore, the company is willing to devote the plant resources from this product to making the thumbdrive for the Defense Dept. if it were to win the bid. Max Weinberg, plant manager, has collected some information for you to help in evaluating if we should bid and more importantly, what our bid should be. Over the last two years we have produced between 494 and 768 drives on a given day. The average number has been 635 with a standard deviation of 40. In addition, Max states that output has been normally distributed. Therefore, it appears that making a minimum bid is within our productive capability. So in thinking about the bid, you know that we need to bid at least 600 per day. And the higher we bid, the more likely it is we get the contract, but also the more likely it is that we fail to reach our guarantee on a given day and must pay the $5000 fine. In addition, Jon Landau, VP of Finance, believes that a profit of $1000 a day is a reasonable goal for the project. After speaking with Jon, you decide that a good place to start would be to investigate the implications of various bids. For instance, if we win the bid, what would our expected daily profit be without taking into account any penalties? Assume that we will be able to continue to average 635 drives per day. Now what is likely to happen if we were to successfully bid 635 units per day. What is the probability that we would default? What would our expected profit be per day? What if we successfully bid 600 units per day? How often would we default? What would our expected profit be per day? From this information, what would you suggest we bid in order to maximize the probability of getting the bid, but still meeting our goal of a profit of $1000 per day