In 1935, Fred Farmer left his position as Vice President of Manufacturing Operations for Atlantic Incorporated to start the WurlWind Appliance Company. Fred was frustrated with Atlantic. He had attempted to implement several innovative design and manufacturing improvements for producing washing machines, but his superiors at Atlantic had rejected his attempts. Fred had dreamed of owning his own company since he entered the appliance manufacturing industry at the end of WWI. With WurlWind, he had the opportunity to live his dream and to put some of his innovative ideas into practice.

In the early years, Fred focused WurlWind production on washing machines. In 1939, he added dryers to his product line. By 1941, WurlWind was the fifth largest appliance manufacturer in the U.S. with over $25 million in annual revenue. Fred's business changed dramatically following the Japanese raid on Pearl Harbor and the United States' entry into WWII. As the United States geared up for war, President Roosevelt urged domestic manufacturers to convert a part of their manufacturing capacity to the production of war materiel. Fred worked closely with U.S. War Department personnel and eventually landed a contract to produce components for tank turrets.

Learning from his experiences during WWII, Fred decided to expand the WurlWind product line. Over the next two decades, WurlWind began producing a wide array of large and small electric appliances. In 1979, Fred retired and passed control of the business to his daughter, Brandy. Brandy quickly realized that Wurlwind could not escape the realities of modern manufacturing: the firm could not continue to grow without a vast increase in capital. In 1983, Brandy decided to take WurlWind public. Later that year, The WurlWind Corporation was born.

For the next 33 years, WurlWind Corp enjoyed moderate growth and continued success. By the end of 2016, however, the high cost of WurlWind's commitment to domestic manufacturing and downward price pressure from foreign competition began to erode WurlWind's profitability. Brandy Farmer, now President and CEO of WurlWind, was faced with a difficult choice. Should she continue to rely on domestic manufacturing and risk bankruptcy or should she move some of WurlWind's manufacturing capacity to a country with lower labor costs?

Brandy accepted the fact that WurlWind had to consider moving some manufacturing capacity out of the country, but she also wanted to keep a domestic alternative on the table. Of the many choices available, Brandy decided to consider closing the WurlWind Power Tool Plant in Peoria, Illinois. She asked Phil Nelson in Long-Range Planning to work up a set of scenarios. Phil's team identified four alternatives:

-Remodel the Peoria plant and continue manufacturing there.

-Close the Peoria plant and build a larger plant in Houston, Texas.

-Close the Peoria plant and build a larger plant in Mexico.

-Close the Peoria plant and outsource manufacturing of this product to a company in China.

Phil's team developed revenue and cost estimates for each of the four scenarios. These estimates are given in Tables 1, 2, and 3. Each of the estimates is for the current planning period. Phil noted in his report that a favorable market would provide ample demand for higher production levels. This is why the revenue estimates for the two new plants are substantially higher than for the current plant.

Alternatives	Forecasts for Favorable Market	Forecasts for Average Market	Forecasts for Unfavorable Market
Current Plant	99,753,000	99,753,000	80,138,500
New Plant in Houston	155,258,452	117,698,476	80,138,500
New Plant in Mexico	129,500,427	117,698,476	80,138,500
Outsource to China	110,517,969	110,517,969	80,138,500

Table 1. Revenue Forecasts by Alternative.

Alternatives	Variable Cost Factor
Current Plant	47%
New Plant in Houston	45%
New Plant in Mexico	44%
Outsource to China	85%

Table 2. Projected Percentage of Revenue Spent on Variable Costs by Alternative.

Alternatives	Fixed Operating Expenses	Construction Costs	Peoria Plant Closing Costs
Current Plant	38,254,152	3,658,952	0
New Plant in Houston	35,522,364	17,387,992	1,500,000
New Plant in Mexico	30,582,699	16,123,987	1,500,000
Outsource to China	1,254,863	0	1,500,000

Table 3. Projected Fixed Costs by Alternative.

Brandy reviewed Phil's estimates and called a meeting of the corporate officers. Phil Nelson and Crystal Ball from the Revenue Forecasting Department were also invited to attend. Phil opened the meeting with a discussion of the alternatives.

Brandy looked over Phil's estimates and asked, "Phil, the China option looks pretty good, but their capacity is a little slim. Is this the best they can do?"

Phil replied. "We asked their representative the same question last week. He confirmed the limited capacity. The problem is not his plant. He does not believe that there is enough shipping capacity available to exceed the revenue targets shown here. Given the experience of other appliance companies doing business in Asia, this is not surprising. You will notice that our Mexico plant alternative is a bit constrained on the high end as well. Given the site selection, we won't have quite as much capacity at the Mexico plant."

"Thanks Phil." Brandy turned to Crystal and said. "Crystal, you have done some work on market probabilities. What do you estimate is the probability that the market during the upcoming period will be favorable, average, or poor?"

Crystal passed her report out to everyone and said, "We have run some preliminary econometric models. Given that the economy is improving, we believe that there is a 43% probability that the market for WurlWind power tools will be generally favorable during the planning period, 37% probability that the market will be average, and 20% probability that the market will be unfavorable."

"Wait a minute! Why is the unfavorable market probability so high?" Sam (Smokey) Joe, VP of Marketing interrupted.

Crystal paused and then said, "Smokey, I think there are two reasons. As you know, we are midway through the product lifecycle. So, it is possible that during the planning period new innovation may start to take our share. As you know, there were some really compelling products at the appliance conference last year. The second reason is market entry. We're considering outsourcing to Mexico, but there are two relatively new companies that may take hurt sales of our economy line."

1. Create a decision table for the four alternatives.

2. Evaluate the decision using expected value. What is the best decision?

3. Evaluate the decision using maximax, maximin, and equally likely. What is the best decision under each criterion?

4. Last, perform some sensitivity analysis using Goal Seek. Find out how much the probability of a favorable market would have to change to make the expected value of the top two alternatives equal. Since this is difficult to do on three probabilities, hold the unfavorable market probability constant. That is, if the favorable market probability goes up, then the average market probability should go down by the same amount.

Brandy nodded her head and said, "We have to look at that carefully. It may be necessary to release a new model in that line that our new competitors can't price competitively. Smokey, have your team take a look at that. But for now, let's accept Crystal's estimates. I think they are pretty good. Are there any other questions about this initiative?" Brandy looked around the table, but no one responded. "Okay, I think we have enough information to perform the analysis. Crystal, work with Phil on this. Here is what I want you to do." Brandy handed a list of tasks to Phil and Crystal. This list is shown below.

"Let's all meet tomorrow to review their recommendations. In the meantime, we have some other pressing issues to work on. Crystal and Phil, thanks for meeting with us." Phil and Crystal got up to leave the room. As they were leaving, they heard Brandy say to her VPs, "Folks, I don't really want to export any manufacturing capability beyond our borders. What else..."

complete the four tasks in the list above. Note that there are several possible solutions to this problem depending on the method used. Based on your analysis and problem context, what do you think the best decision is? What do you think of their model? Are Brandy and her team overlooking anything?

QUESTION perform some sensitivity analysis using Goal Seek. For this question assume the you only have Favorable and Unfavorable markets and there is no Average market possibility. Construct a sensitivity table and plot the payoffs versus P(Favorable). Then determine the trade-off points Current vs New Houston Plant, Current vs New NM plant, and Houston vs New Mexico plants. Comment on trade-off