Chapter 13 - Operations Management

Order the steps in the process for finding the order quantity that maximizes expected profit

1. Evaluate the critical ratio 2. Find the z value that corresponds to the critical ratio 3. Use the z value to calculate the optimal order quantity for the true demand distribution

To compute expected sales for a given order quantity you need to know or compute which of the following:

1. expected inventory 2. the order quantity

The newsvendor model is appropriate for a setting where a customer will wait for the next shipment to show up in cases where a store runs out of inventory - True or False?

False

What is the salvage value?

The price at which units are units are sold at the end of the selling season

Expected profit is also based on the consequences of inventory that needs to be salvaged - True or false?

True

Maximize expected profit

according to critical ratio

High customer service

according to desired in-stock probability

To use the graph method to find Q&* you first find the point on the y-axes that equals the...

critical ratio

To use the graph method to find Q&* you first find the point on the y-axis that equals the...

critical ratio

The expected gain associated with holding the Qth unit in inventory ____ as Q increases

decreases

The order quantity prescribed by the newsvendor model optimizes which performance metric?

expected profit

The probability that enough inventory is available to satisfy all demand is called the...

in-stock probability

Expected ____ must be salvaged

inventory

make-to-order

item produced after a customer commits to purchasing it

make-to-stock

item produced before eventual owner is known

The larger the critical ratio the ... the order quantity that maximizes expected profit

larger

The round-up rule state that when looking up a probability in a statistical table and the probability falls between two entires you should choose the entry with the ____ probability

larger

If the critical ratio is 6, there is a 60% chance that demand is ______ the optimal order quantity Q&*

less than or equal to

The underage cost measures...

lost profits

Which of the following factors are involved in the calculation of expected profit?

order quantity, expected inventory, expected sales

The density function returns the ______ a given outcome occurs

probability

To derive the optimal order quantity for the true demand distribution from the optimal order quantity for the standard normal distribution, multiply the ___ of the true demand distribution by the optimal order quantity for the standard normal distribution.

standard deviation

When z=-1, the optimal order quantity should be one ... below the mean of the actual demand distribution

standard deviation

When z=2, the optimal order quantity should be two ___ ___ above the mean of the actual demand distribution

standard deviations

Expected sales measures those sold at ______ price

the regular

Match the outcome with the "pain"

too much - inventory sold at a deep discount too few - lost sales and profits