Mining companies purchase large and specialized equipment. The company specifies the features required for the product in a request for quotations (RFQ) and suppliers submit bids. Because of the complex nature of the equipment, an RFQ and each individual bid can run into hundreds of pages of detail. A Canadian mining company has purchasing offices in three regions of the world that issue RFQs for their region and analyze the resulting bids. The chief purchasing officer for the company wants to reduce the workload of the individual purchasing offices by using past data to estimate in advance the likely range of prices in each of the three parts of the world. The purchasing office of a region where the price is estimated to be high will not be asked to issue an RFQ or to analyze any bids. The table gives his estimates for 10 large bulldozers the company needs to purchase, together with the standard deviations of those estimates. Assume the estimates follow a Normal distribution.

He decides to get the Toronto office to issue an RFQ because the estimated price there is lowest. He will ask the other offices to issue RFQs if there is at least a 0.25 probability that their price will be less than that in Toronto.

a) Should the company issue RFQs in Osaka?

b) Should the company issue RFQs in Frankfurt?

c) Give an intuitive explanation of your result.

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Estimated Price Purchasing Office City Osaka Toronto Standard Deviation Region Asia $2.3m $7.8m N. America $6.1m $7.1m $1.2m EU Frankfurt $0.6m