OM

Demand uncertainty is effectively eliminated when pooling two products that have correlation that is:

-1

how to determine the optimal order quantity

1. evaluate the critical ratio 2. 3.

how to evaluate expected inventory in newsvendor model given an order quantity of Q

1. find z corresponds to the order quantity Q 2. evaluate the expected inventory with the standard normal distribution 3. convert the expected inventory for the standard normal into the EI for actual demand distribution

standard normal distribution

A normal distribution with a mean of 0 and a standard deviation of 1.

root cause

A root cause for a defect is a change in an input or an environmental variable that initiated a defect

Which assumption of the EOQ model (partially) enables it to ignore the purchasing cost per unit of time?

All orders met from inventory

ch 12

EOQ (Economic Order Quantity)

underage cost

The cost of ordering one unit too few eg ordered 3000, demand 30001, lost sales The underage cost measures lost profits

Expected inventory

The expected number of units not sold at the end of the season and that are therefore salvaged.

expected profit

The expected profit earned from the product, which includes leftover inventory.

Which demand is easier to forecast?

Total demand across a set of products

natural variation/common cause variation

Variation occurs in a process as a result of pure randomness

three key inputs to the newsvendor model

a cost of ordering too little a cost of ordering too much a demand forecast

density function

a function that returns the probability a given outcome occurs for a particular statistical distribution

EOQ (Economic Order Quantity)

a model used to select an order quantity that minimizes the sum of ordering and inventory holding costs per unit of time

The standard deviation is a(n) _______ measure of demand uncertainty.

absolute

To calculate maximum profit you assume that the order quantity is determined _______ the actual demand is observed.

after

make to stock system

an item production begins before the customer for the item is known (undecided target market) units are generally placed in inventory to await customer demand

In the newsvendor model, the order quantity is determined _______ demand is known.

before

One strategy for managing the newsvendor environment is to be able to order additional supply _______ the end of the season.

before

Being able to place a second order impacts which mismatch costs?

both costs

Knowing a second order can be placed helps an organization be more _______ with their first order.

conservative

In the saw-toothed inventory pattern, inventory decreases at the ______ rate of demand.

constant

The assumption in the economic order quantity model is that the order cost ______ depend on the size of the order.

does not

Salvage value is applied to units during which period?

during the selling season

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

expected profit

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.

false

If the z value for an order quantity Q is positive then Q must be ________ the mean of the demand distribution.

greater than

Select all the products that are suitable for the make-to-stock system.

groceries newspapers

round up rule

if the probability you look up in a statistical table falls between two entries, choose the one with the larger probability

If the standard deviation of the demand distribution increases--and everything else remains the same--then the expected inventory

increase

The EOQ model assumes that demand ______ over time.

is constant

The economic order quantity is the order quantity where the order cost per unit of time _______ the holding cost per unit of time.

is equal to

The larger the correlation between two products, the _______ the coefficient of variation of the pooled product.

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

Assume the purchase price is higher in the second order than in the first. When determining the best first order quantity, the critical ratio is _______ when there is an opportunity to make a second order than when there isn't.

lower

For which type of system does success depend on customers being willing to wait?

make to order

Which system does not have leftover inventory costs?

make to order

For which type of system is the newsvendor model most appropriate?

make to stock

Which system leads to mismatch costs? Multiple choice question.

make to stock

outcome variables

measures describing the quality of the output of the process

The more leftover inventory costs the ______ likely a make-to-order system is best.

more

Which correlation leads to a reduced coefficient of variation for pooled demand?

negative

The EOQ model assumes that there is ____ variation in the lead time (the time between when an order is placed with the supplier and the order is received). Multiple choice question.

no

environmental variables (not directly under control of the operation)

not under control of management but might impact the outcome of the process

Supply chains often operate on a make-to-order basis when customers are ___.

patient

in-stock probability

probability that enough inventory is available to satisfy all demand

make to order system

production line begins when customer are committed to purchase

The coefficient of variation is a(n) _______ measure of demand uncertainty.

relative

the newsvendor model

represents a situation in which a decision maker must make a single bet before some random events occur The newsvendor model is for settings wherein if inventory is not available to make a sale that sale is lost

Forecasting methods should be _________.

rigorous and data-driven

The larger the correlation between two products, the ________ the expected profits

smaller

The larger the expected sales in the first order, the ______ the expected sales in the second order.

smaller

To find the optimal order quantity using the standard normal distribution you first find the optimal order quantity for the ________ distribution.

standard normal

two types of mismatch costs

the cost of inventory (too much supply) the opportunity cost of stockouts (too little supply)

expected sales

the expected number of units sold during the season at the regular price

Upper Specification Limit (USL)

the largest outcome value that does not trigger a defective unit

Lower Specification Limit (LSL)

the smallest outcome value that does not trigger a defective unit

The coefficient of variation of demand is the ratio of:

the standard deviation of demand to expected demand

salvage value

the value that can be obtained per unit for inventory left over at the end of the selling season The price at which units are sold at the end of the selling season

input variable

the variables in a process that are under the control of management

critical ratio

underage cost/underage cost + overage cost Cu/Cu+Co

assignable cause variation

variation that occurs because of a specific change in input or in environmental variables

Make-to-order is effective when all customers _________.

want variety or different versions of a product