Evaluating the Onshoring Option
Starting Demand 1,000
Variable Cost / Unit = $10
Sale Price = $20
Starting Yuan / $ 6.5
Period 2 Analysis Period 1 Analysis Period 0 Analysis
E (Yuan Exchange Rate) D(Demand) Revenue Cost Profit
E (Yuan Exchange
Rate)
D(Demand)
Expected
Profit from
Period 2
Revenue Cost Profit
Total
Expected
Profit
E (Yuan
Exchange
Rate)
Expected
Profit from
Period 1
Discounted
Expected
Profit
7.16625 1,210 $24,200 $12,100 $12,100 6.825 1,100 $11,000 $22,000 $11,000 $11,000 $21,000 6.5 $19,091 $17,355
6.48375 1,210 $24,200 $12,100 $12,100 6.175 1,100 $11,000 $22,000 $11,000 $11,000 $21,000
7.16625 990 $19,800 $9,900 $9,900 6.825 900 $9,000 $18,000 $9,000 $9,000 $17,182
6.48375 990 $19,800 $9,900 $9,900 6.175 900 $9,000 $18,000 $9,000 $9,000 $17,182
5.86625 1,210 $24,200 $12,100 $12,100
5.86625 990 $19,800 $9,900 $9,900
7.16625 810 $16,200 $8,100 $8,100
6.48375 810 $16,200 $8,100 $8,100
5.86625 810 $16,200 $8,100 $8,100
Demand Up 1.1
Probability 0.5
Demand Down 0.9
Probability 0.5
Yuan Up 0.95
Probability 0.5
Yuan Down 1.05
Probability 0.5
Expected profit over 2 periods from on-shore source
is given in Cell Q10.
Evaluating the Off-Shoring Option
Starting Demand 1,000
Variable Cost / Panel = ¥55
Sale Price = $20
Starting Yuan / Euro 6.5
Period 2 Production = 990
Period 1 Production = 1,100
Period 2 Analysis Period 1 Analysis Period 0 Analysis
E (Yuan Exchange Rate) D(Demand) Sales
Production
Cost
Quantity
Revenue
($)
Cost
(Yuan)
Profit ($)
E (Yuan
Exchange
Rate)
D(Demand) Sales
Production
Cost
Quantity
Expected Profit
from Period 2
($)
Revenue
($)
Cost
(Yuan)
Profit ($)
Discounted
Expected
Profit ($)
E (Yuan
Exchange
Rate)
Expected
Profit from
Period 1
(Euro)
Discounted
Expected
Profit (Euro)
7.16625 1,210 990 990 $19,800 ¥54,450 $12,202 6.825 1,100 1,100 1,100 $11,802 $22,000 ¥60,500 $13,136 $23,865 9$20,197 $19,361
6.48375 1,210 990 990 $19,800 ¥54,450 $11,402 6.175 1,100 1,100 1,100 $10,960 $22,000 ¥60,500 $12,202 $22,166
7.16625 990 990 990 $19,800 ¥54,450 $12,202 6.825 900 900 1,100 $10,002 $18,000 ¥60,500 $9,136 $18,228
6.48375 990 990 990 $19,800 ¥54,450 $11,402 6.175 900 900 1,100 $9,160 $18,000 ¥60,500 $8,202 $16,530
5.86625 1,210 990 990 $19,800 ¥54,450 $10,518
5.86625 990 990 990 $19,800 ¥54,450 $10,518
7.16625 810 810 990 $16,200 ¥54,450 $8,602
6.48375 810 810 990 $16,200 ¥54,450 $7,802
5.86625 810 810 990 $16,200 ¥54,450 $6,918
Expected Demand = 1,000
Demand Up 1.1
Probability 0.5
Demand Down 0.9
Probability 0.5
Yuan Up 0.95
Probability 0.5
Yuan Down 1.05
Probability 0.5
Expected profit over 2 periods from off-shore source
is given in Cell U11.
Evaluating the Hybrid Option
Starting Demand 1,000
Variable Cost / Panel = ¥55
On-Shore Variable Cost = $11.00
Sale Price = $20
Starting Yuan / Euro 6.5
Period 2 Production in
China =
900
Period 1 Production in
China =
900
Period 2 Analysis Period 1 Analysis Period 0 Analysis
E (Yuan Exchange Rate) D(Demand) Sales
China
Production
On-Shore
production
Revenue
($)
Cost ($) Profit ($)
E (Yuan
Exchange
Rate)
D(Demand) Sales
China
Production
On-Shore
Production
Expected
Profit
from
Period 2
($)
Revenue
($)
Cost ($) Profit ($)
Discounted
Expected
Profit ($)
E (Yuan
Exchange
Rate)
Expected
Profit from
Period 1
(Euro)
Discounted
Expected
Profit (Euro)
7.16625 1,210 1,210 900 310 $24,200 $10,317 $13,883 6.825 1,100 1,100 900 200 $12,529 $22,000 $9,453 $12,547 $23,937 6.5 $21,265 $19,331
6.48375 1,210 1,210 900 310 $24,200 $11,044 $13,156 6.175 1,100 1,100 900 200 $11,764 $22,000 $10,216 $11,784 $22,478
7.16625 990 990 900 90 $19,800 $7,897 $11,903 6.825 900 900 900 – $10,234 $18,000 $7,253 $10,747 $20,051
6.48375 990 990 900 90 $19,800 $8,624 $11,176 6.175 900 900 900 – $9,469 $18,000 $8,016 $9,984 $18,592
5.86625 1,210 1,210 900 310 $24,200 $11,848 $12,352
5.86625 990 990 900 90 $19,800 $9,428 $10,372
7.16625 810 810 900 – $16,200 $6,907 $9,293
6.48375 810 810 900 – $16,200 $7,634 $8,566
5.86625 810 810 900 – $16,200 $8,438 $7,762
Expected Demand = 1,000
Demand Up 1.1
Probability 0.5
Demand Down 0.9
Probability 0.5
Yuan Up 0.95
Probability 0.5
Yuan Down 1.05
Probability 0.5
Base line sourcing from off-shore in each of two periods is
given in Cells B7 and B8
Expected profit over 2 periods from hybrid sourcing
is given in Cell W12.