JSW Steel Ltd: A Logistics Dilemma (B)
(3 pages of text)
In 2015, the assistant general manager at JSW Steel Ltd. (JSW), one of India’s largest steelmakers, faced a dilemma. Should JSW continue to transport the company’s end products to clients, or should JSW instead outsource the transportation to a third-party provider? Outsourcing would ensure timely delivery but would increase the cost. Another option was to pay an agency a premium for sharing information on the availability of Class I and Class II barge vendors. Class I barges were more reliable in terms of on-time and damage-free delivery, whereas Class II barges had a smaller capacity, were less reliable, and had a greater risk of goods being damaged, for which JSW could face both monetary and non-monetary losses. Although the Class I barges led to higher payoffs, the outsourcing option offered a fixed and relatively lower payoff. The assistant general manager’s objective was twofold: to meet the customer requirements in time and to benefit JSW financially. How should he decide which option to pursue?
This case can be used to teach decision making under risk in a decision analysis, management science, or operations research course in a postgraduate program in management, industrial management, or industrial engineering. After working through the case and assignment questions, students will have developed their ability to do the following:
- Describe decision making under risk in logistics management.
- Explain the basic concept of probability theory in general and Bayes’s theorem in particular.
- Define the concepts of prior probability, conditional probability, joint probability, unconditional probability, and posterior probability.
- Develop a decision tree from the data provided and calculate the expected payoffs through the expected monetary value approach.
India, Large, 2015
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