Bid Pricing Decision for Erehwon State Contract
Brunswick Corporation's School Equipment Division is tasked with setting a bid price for an Erehwon State contract for lecture hall seating. Mr. Carlaw, the liaison engineer, evaluates the potential profitability of producing different seating models and determines the pricing strategy for securing contracts in 2016 and 2017. By analyzing probabilities and costs, a decision tree approach is used to recommend the optimal bid pricing strategy, resulting in a projected average profit of $37,520.
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BRUNSWICK CORPORATION: SCHOOL EQUIPMENT DIVISION Javier GramageSempere IrvinEduardo ClaureYelma Jacobo Romero Roig
INTRODUCTION BRUNSWICK CORPORATION: manufacturer of furniture equipment School equipment division Located in Kalamazoo, Michigan. Felt to be among the top 2 or 3 suppliers of school equipment in U.S.A. Major competitors: American Seating Company, Virco, Heywood-Wakefield, Clarin, Herman Miller.
CASE DESCRIPTION Trying to decide the bid price to set for an Erehwon State contract for lecture hall seating. Erehwon requires equipment for 3 faculties in April 2016, and will require equipment for4faculties moreinApril 2017. If Brunswick get a contract for 2016 and Erehwon State gets satisfied with their work,it s possible that in2017they contractBrunswickagain. In 2016, 3 different models of seating are required by Erehwon. Brunswick produces a standard product that fits with model C requirements. For model B they only have to make a minor modification to an existing design. Model A will be designed from the beginning, cause doesn t exist in any company nowadays.
CASE DESCRIPTION Mr. Carlaw, liaison engineer of Brunswick, will investigate the contract s potential. He will decide the viability of producing model A seating, calculating the costs and de profits it will bring for them. Will decide if the production of models B and C will report them profits. He will take into account the prices Brunswick set for their products, so it will influence Erehwon to contract them again in 2017. Mr. Carlaw make combinations with the probabilities of getting anything, 1 faculty or 2 faculties in 2016, and the probabilities for the faculties offered in contract in 2017, taking into account the different prices they can set.
SOLUTION Calculus
SOLUTION To solve the problem, we made a decision tree with all the variables we found. 2 initial options: Set the price in $58.75 Set the price in $54.75 Then, in each case, Erehwon State can contract Brunswick for 0, 1 or 2 campus. If being contracted for 1 or 2 campuses in both price ways, they can: Keep the price. Decrease the price. The decision of keeping the price or decrease it would make Erehwon State decide if contract Brunswick again in the 2nd bid for 0, 1, 2 or 3 campuses, depending of the branch we take.
SOLUTION BEST DECISION: For 1st contract bid: to produce seating at $54.75 After that: If they are chosen for 1 campus: reduce the price to $51.75 for the 2nd contract bid. If they are chosen for 2 campuses: keep the price. THE FINAL AVERAGE PROFIT OBTAINED IN TOTAL WOULD BE OF $37,520
CONCLUSIONS Brunswick must apply the solution we have seen before to get the major profitability possible. Personal opinion: Difficult practical case Complicated to choose the variables We learnt every decision problem can be proposed as a tree and been solved. Doesn t matter its complexity. Good experience to learn more about decision taking.
