PNW is a lumber manufacturer that purchases lumber materials from saw mills, creates products, and…

PNW is a lumber manufacturer that purchases lumber materials from saw mills, creates products, and distributes them to their clients. PNW wants help in understanding how to manage the supply chain for one of their products. Specifically, they may order the materials from one of three suppliers (A, B, or C). They do not want to hold a large inventory of the raw materials, so they try to order the materials in anticipation of demands they know are coming. In other words, PNW has some idea of the demand of their customers, from historical data, and they try to make orders from their suppliers to anticipate that demand. For example, if they make an order of 8,000 units from a supplier, they will need 8000 / (production rate/day) days to convert the raw material into products. They usually have a period in which they know an order is coming from their customer (say two weeks from today), but don’t know the exact quantity to be ordered. Therefore, there is some risk in ordering too little or too much. There is also some risk associated with how long it will take their supplier to deliver the raw material to be converted into the finished product. We call this the supplier lead time. The production time and supplier lead time together must be less than the customer lead time expectation (14 days in this example) in order for PNW to fulfill the order, otherwise it is lost. If PNW does not produce enough for their customers, they pay a shortage cost. If PNW produces too much, they pay a holding cost. These costs are added to the total product cost to create the total cost. PNW does not pay product costs or holding costs if the supplier does not deliver, but they may still pay a shortage cost. PNW makes revenue only on sold finished goods. Their objective is to maximize the expected profit of their ordering decisions.PNW has built a model to capture these dynamics. They have hired you to help analyze the model for insufficiencies and for insights. Specifically, there are two decision variables in the model: The Chosen Supplier (A, B, or C) and the Order Quantity from that supplier. There are also parameters that may be up for negotiation or long term planning change.