Decision Making Tools

Decision Making Tools

Production Order Decision Making from Multiple Product Choice and production Constraints.

Sunil Kumar Puri

"Somewhere along the line of development we discover what we really are, and then we make our real decision for which we are responsible. Make that decision primarily for yourself because you can never really live anyone else's life."

-- Eleanor Roosevelt

Introduction

Good decisions are the roots of success, and at times there are moments when the process of decision making can be difficult, perplexing, and nerve-racking. However, the boldest decisions are also the safest. Nothing succeeds a success better than another sweet success.

A leader is a person who knows and recognizes his/her feasible limits set by his/her surroundings. A leader recognizes what is under his/her control and what is not, and has the ability to accept the first and extend the second one. There is an old saying that goes like "If there is a will, then there must be a way". In fact the opposite of this is the truth, i.e. "If there is a way, then there must be a will". If there are gaps in the feasible region and if one ignores one or some constraints, and then one can invite big trouble, e.g., willingness beyond ones' ability. Willingness alone is not sufficient to carve out a way. Willingness, ability, dedication and determination to apply are necessary ingredients of success. It is therefore very important to understand ones abilities and expertise as well as ones constraints. Any decision made without acknowledging both, the ability and the constraints can invite more disaster and no progress. Often, because of frustrations or ignorance of decision making science while facing a difficult problem, one may unfortunately solve it by creating a bigger problem. This strategy may get rid of a present problem but it creates a new problem as a side effect. The decision making tools help us in taking the right decisions. These tools are simple to understand and follow. But the outcome is remarkably clear and correct.

In day to day business we all encounter situations where we are confronted with various propositions which come attached with several opportunities and constraints. With this paper we will start a series of papers that will take a look at some of the simple but effective decision making tools. As business decision becomes more and more complex we may need to take help of more that one tool to arrive at the right conclusion.

The Problem

We start the series with a tricky situation where a manufacturer who has more order than he can deliver for products which have different margins of contribution, different production rates, different order sizes and different costs of production as well. Given on the next page is a table of orders received by a manufacturer of Sweaters which states the Style No, the Sale price, the cost price, the margin of contribution, the order quantity the production rate , the number of processes involved in manufacturing the style as well the manufacturers evaluation of the degree of difficulty in manufacturing the style and the number of production days available to him. This kind of a situation is faced by many manufacturers of Sweaters in Ludhiana when they have multiple style orders with no uniformity in cost price, margin of contribution, production rate, number of processes involved in manufacturing as well the order quantities.

To be able to solve the problem which styles to manufacture to obtain maximum contribution in profits as well as considering the various other aspects in mind can be a harrowing experience without knowledge of some simple decision making tools. Here the manufacturer has to see that he shall be able to manufacture maximum number of pieces at the lowest cost and he shall also not overlook the order quantities. A style which has been sold the most cannot be ignored even if it fetches lesser margin of contribution. After all this the is style which has been liked by all his retail customers, ignoring this style may also effect the reputation of the manufacturer.

A Japanese proverb says, "Thinking without action is a daydream. Action without thinking is a nightmare." The origin of decision theory is derived from economics by using the utility functions of payoff. It suggests that decisions be made by computing the utility and probability, and the ranges of options. It also lays down strategies for good decisions. Any business decision shall therefore be based on utilization of all functions of payoff by computing the utilities and probabilities keeping all ranges of options as well as constraints in mind. In the case of study the manufacturer has to consider