Logistics Decision Making Using a Decision Tree in Excel
Logistics is the process of planning and executing the efficient transportation and storage of goods from the point of origin to the point of consumption. The goal of logistics is to meet customer requirements in a timely, cost-effective manner. Many times logistics involves warehouse and location planning decisions. To determine the optimum choice, we often use a tool known as a "Decision Tree." A decision tree lists all the various outcomes and probabilities, allowing us to calculate the expected "Payoff" for each alternative. This lets us compare all possible outcomes, selecting the one with the highest Expected return. There are many commercial "Decision Tree" software packages available but, with a little work, Microsoft Excel can be used to set up a template which may be used for a variety of business logistics problems. Our example focuses on a decision to either Build a new warehouse, Expand our current operations through leasing, or Do Nothing. He