Bijoux LeMonde-Crystal Ball Simulation decision-model
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A completed simulation decision-model spreadsheet. Using Crystal Ball, simulate Bijoux LeMonde's potential profit and loss, addressing the uncertain demand from Channel 24K. Run the simulation twice, using 500 and 10,000 iterations, and submit both sets of results.
A 250- to 750-word memo to Claude LeMonde. This memo should include the following sections:
Background and context of the current situation with 24K
Recommendations: What should LeMonde do?
Justification: What are your reasons for your recommendations? Outline the risk involved at all levels of Vazquez's counteroffer, identifying the potential worst quarter and describing the VaR for each quarter and the year. Does this deal have the potential to be profitable for Bijoux LeMonde? What is the risk of incurring a loss?
Overview of methodology: Briefly describe how you modified the simulation to model the problem.
Technical section: Detail the changes you made to the model you used in the previous task. Include the Crystal Ball output for both runs of 500 and 10,000 iterations.
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Solution Summary
This post provides step-by step solution to Bijoux LeMonde case using the crystal ball decision model spreadsheet. The solution contains complete help on how to set up the simulation (excel file) and then how to present the solution in a management report (word file). Please remember that every time you run the simulation, different results are received. So it is a good learning exercise for the students on decision analysis using crystal ball.
Solution Preview
Please see the attached file.
Please remember that every time you run the simulation you will get slightly different results. So try yourself and see the results.
Background and context of the situation:
Bijoux LeMonde (BL) and Channel 24K are negotiating for a deal to sell L'Eternite bracelet. The company is currently selling its bracelets through Swiss boutiques at the wholesale price of U.S.$210. During the current negotiations the Channel 24 has indicated a willingness to offer a fixed rate of $180 per bracelet. BL feels that it would be able to get a price of $195 from Channel 24K. The deal with Channel 24K would provide BL extra turnover and profits and it would make the debt payments easily. However, the problem with BL is that it cannot afford to make losses in any quarter, as they are required to repay the loan. The deal with the Channel 24K would be a fixed cost deal hence the revenue side would be fixed, however, BL is purchasing gold at the spot prices. The gold prices are volatile and hence it is difficult for BL to decide whether it should enter into a deal with BL or not. The second problem is that the demand from Channel 24K is not stable. The demand would vary between 1500 to 10000 bracelets per quarter with an average of 5750 bracelets per quarter. The problem is to decide whether it should enter into a deal with Channel 24K or not.
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