John Doke is deciding whether to implement a single or dual-sourcing strategy for one of the critical components used in production of its excavators at its facility in Kernesville, NC. John Doke provides you with the following estimates:

The probability that any given supplier fails independently of the others is 9% (e.g. a quality failure)

The probability of a super-event which would knock out all of the potential suppliers is 2.7% (e.g. a natural disaster)

If all suppliers are down, John Deere will not be able to meet its orders and this creates an annualized loss of $1000000 per year.

The cost to manage a supplier is $57000 per year.

Draw a decision tree to determine the best sourcing strategy for John Doke.

1. Calculate the probability that all suppliers fail if using a single-sourcing (one supplier) strategy.

a.0.20700

b.0.11943

c.0.11700

d.0.20214

e.0.11457

f.0.14400

g.0.00243

h.0.08757

2. Calculate the probability that all suppliers fail if using a dual-sourcing (two supplier) strategy.

a.0.09066

b.0.20700

c.0.20214

d.0.01313

e.0.03488

f.0.11457

g.0.22914

h.0.00788

3. Calculate the total annual expected cost if using a single-sourcing (one supplier) strategy.

a.31991

b.84000

c.1006530

d.93078

e.36983

f.91539

g.141000

h.171570

4. Calculate the total annual expected cost if using a dual-sourcing (two supplier) strategy.

a.92100

b.141000

c.148881

d.204663

e.27000

f.147663

g.7881

h.121881

5. Which strategy does John Doke prefer, single sourcing or dual sourcing? Enter the total expected cost associated with the better of the two strategies. Enter your final answer in dollars rounded to the nearest dollar.