Salmones Puyuhuapi Part Iii

Abstract

This case series is appropriate for undergraduate, MBA, executive education, and MBA Exec audiences but is specifically designed for decision analysis, a first-year MBA core course. In the Part I case, Osvaldo Correa, CEO of Salmones Puyuhuapi (SP), must decide how to respond to news that the ISA virus has infected a competitor's salmon farming site. The alternatives include harvesting SP's 900,000 salmon two months early, waiting for the fish to grow and risk losing fish to the virus, and vaccinating the fish. The "harvest now" alternative is evaluated using normally distributed fish weights. It is necessary to account for monthly growth of the fish and mortality to value the ends of the decision tree. Other alternatives (e.g., testing the water, fish, and marine life) can be studied with the expected value of perfect information. Vaccination is an example of the value of perfect control. Excerpt UVA-QA-0776 Sept. 15, 2011 Salmones Puyuhuapi PART I Osvaldo Correa, CEO of Salmones Puyuhuapi (SP), was in a tense meeting with bank officials, negotiating the terms of his firm's line of credit, when he received a text on his BlackBerry. The news was not good. Correa tried to remain calm in front of the bankers as he read the terse message about a suspected outbreak of the infectious salmon anemia (ISA) virus in a competitor's salmon farm. Correa knew that if the virus were to spread to his firm's Jacaf Fjord site in northern Patagonia, Chile, it could wipe out his nearly one million salmon two months before they were to be harvested. That would have a devastating impact on his firm's cash flows. Excusing himself to go to “los servicios” (the only excuse he could come up with), Correa e-mailed his assistant to set up a meeting later that day with Jorge Richards, his operations manager, and Sergio Rivas, the company's veterinarian. Salmon Farming in Chile Chile was a relatively small country of nearly 16 million inhabitants whose economy was driven principally by mining, agribusiness, forestry, and aquaculture. In particular, the salmon industry, although relatively new, had been wildly successful. The industry was established in the early 1980s to take advantage of natural conditions in the south of the country (moderate sea temperatures, sheltered sites, and ideal salinity levels). It achieved nearly 20 years of 42% annualized growth, allowing it to join Norway as the world's largest salmon producers. In 2006, these two countries shared 78% of global production. Salmon farms, which thrived in the southern regions of Chile, dominated the local economies and led to high rates of employment. . . .