So, what we've done is we've used simulation

to roll back the decision tree for this complex event.

Remember, first IDEA decided to contract with supplier S

then there was an event that the market was weak.

Then there was another event that the actual demand was somewhere between 2,000

units and 8,000 units.

And we had a general formula for any given Q, where we plugged in Q of 5,000,

and also based on a random D.

What we did was simulation is we rolled that last node back and

estimated the expected value of that event node as being 42,405 Euros,

and those are our simulation results that we can use to compliment

the rest of the decision tree.

We can do the same thing for

the other three important events nodes in IDEAs decision tree.

That is supplier S with a strong market, supplier P with a weak market, and

supplier P with a strong market.

So let's go ahead and take a look and see what those simulations look like.

Here are the results for supplier S in a strong market.

The spreadsheet looks nearly identical, but you can see the results of

the simulation in column B for the demand have numbers that look quite different,

because they are uniformly distributed between 6,000 and 10,000.

In every single case you can see in column F, the profit is 150,000 euros.

And that's because IDEA only could order 5,000 units from supplier S.

So no matter what demand was, anywhere between 6,000 and 10,000 units,

IDEA would always sell 5,000 units and make a profit of 150,000 euros.

The average profits 150,000 and the standard deviation which is

the variation around the average is 0 because every single times is 150,000.

The next spread sheet I'll show you is when IDEA supplier P and

has a weak market.

Here we need to look carefully at column B you can see the order

quantity is now 10,000 in cell B3,

you can see the fixed cost is now 50,000 in cell B4.

And you can see the unit cost is now down to 100 in cell B6.

The sample demand numbers in the rest of column D are exactly

the same 1,000 numbers that we had before for supplier S in a weak market.

Because we've used the same random seed, one two three four.

Again the rest of the spreadsheet's exactly the same, and with those demand

numbers we can calculate another 1,000 profits and calculate the average and

we see that the average profit If IDEA chooses supplier P and the market is weak.

The estimated profit for IDEA if it chooses supplier P and

the market is weak is 293,391 Euros of loss and

the standard deviation is also quite large.