Following the natural disaster incident of a tornado damaging the electronics steering wheel chips plant in Japan, BMW decided to change its single-sourcing strategy of major components to multi-sourcing. The top management believes that the probability in any year of a “superevent” that might shut down the Japan plant again for at least 4 weeks is 0.5%; causing financial strains of €400,000. However, the probability of a “unique event” risk for any of the suppliers is estimated to be 5%.

Evaluate the number of suppliers BMW should select, assuming that the marginal cost of managing the first supplier will not exceed €15,000 per year, and then for every additional supplier, it will be €25000. Up to three nearly identical suppliers are available. Show the different steps in your analysis.