operations management final
the previous forecast was 100 units. the actual demand is 150 units. there is an alpha of 0.5. what is the next forecast going to be? -100 -150 -125 -200
125
durable goods typically have a holding cost percentage of around? tech, fashion and perishable items can be as high as?
20-30% 50-100%
a forecast that is correct on average, an average forecast error should be equal to zero
unbiased forecast
the cost of ordering one fewer unit that what you have ordered had you known demand
underage cost
inventory that is inside the process has been "started on"
work in process
what category of inventory does buffers (inventory between process steps) fall into? -raw material inventory -work in process inventory (WIP) -finished good inventory -all of them
work in process inventory
time between placing an order and receiving it
lead time
-3+ years -new product planning, facility location
long range forecast
one sale goes up and one will go down works really well
-1 negative correlation
not correlated at all
0
2 items are bought together doesnt work so well
1 positive correlation
a method for determining level of control and frequency of review of inventory items
ABC classification
basic idea is that as order size (batch size) increases
EOQ
can be used for determining batch size or order size
EOQ
smoothing lags when you see changes when you have a trend in the data youll notice that the moving average lags behind
MA3
smoother than MA3 lags a little bit further behind - less responsive more time period means a smoother forecast
MA5
inventory turn is -the number of times the average inventory flows through the process in a designated interval of time -increases as the flow rates increas -decreases as the flow rate increase -a and b
a and b
holding inventory is costly because -opportunity cost of capital -inventory stock out cost -obsolescence cost -a and c
a and c
which of the following is not an example of inventory -bags of flour waiting to used in the making of bread -a motorcycle that is being built -a line of cars waiting at a carwash -a container of TVs being shipping to another country -all are examples of inventory
all are examples of inventory
which of the following is true for inventory control? -economic order quantity has minimum total cost per order -inventory carrying costs increases with quantity per order -ordering cost decreases with lo size -all of the above
all of the above
forecasts that are created by computers, typically with no human intervention (weather forecasting)
automated forecasting
a forecast that is wrong on average, with a forecast error different from zero
biased forecast
explores cause and effect relationships uses leading indicators to predict the future
casual models or associative models
which is true? -the cost of spoilage increases with lower levels of inventory -companies consider the opportunity cost of holding inventory when determining how much inventory to hold -obsolesce cost is a reason to increase inventory levels -a stockout cost is incurred when there is not enough room in the warehouse to hold all of inventory and extra space must be contracted out of the facility
companies consider the opportunity cost of holding inventory when determining how much inventory to hold
if we face a stock out and our profit does not change much because we do the replenishment very quick, which of the following cases actually happened? -we lost the sale -we lost the sale and the customer -customer waits for the item to become available -b and c
customer waits for the item to become available
repeating up and down movements due to interactions of factors influencing economy usually 2-10 years duration
cyclical component
forecast accuracy ___ as the time period covered by the forecast ___ -increases, decreases -decreases, increases -is eliminated continues -continues is eliminated
decreases, increases
the process of creating statements about future realization of demand
demand forecasting
which statement is not true about the newsvendor problem? -there is only one opportunity to order -demand is known -the cost of buying too many can include disposing of the items or selling them at a discount -all are true
demand is known
the reason for safety inventory or safety stock is -seasonality -batching -demand uncertainty -pricing
demand uncertainty
the variable that we try to explain in a regression analysis
dependent variable
the earliest start time for an activity is -based on the length of the critical path -determined by the maximum of the earliest finish times of its immediate predecessors -the same as the latest start time of its immediate predecessor -none of the above
determined by the maximum of the earliest finish times of its immediate predecessors
level (long term average) - data around constant mean trend - data exhibits an increasing or decreasing patter seasonality - any pattern the regular repeats itself and is of a constant length
historic pattern to be forecasted
the forecast error is equal to -error=actual-forecast -error=forecast-actual -error=(actual-forecast)^2 -error=(actual-forecast)/n
error=forecast-actual
maximum profit is computed as the product of _______ and _____ -expected demand, profit per unit sold -actual demand, unit selling price -expected demand, unit selling price -actual demand, profit per unit sold
expected demand, profit per unit sold
the expected number of units not sold at the end of the season and that are therefore salvaged
expected inventory
the expected profit earned from the product, which includes leftover inventoy
expected profit
the expect number of units sold during the season at regular price
expected sales
forecasts generalized using the subjective opinions of management
expert panel forecasting
a forecasting method that predicts the next value will be a weighted average between the last realized value and the old forecast used for short term forecasts - 1 to 2 periods in the future
exponential smoothing
estimation of values beyond the range of the original observations by assuming that some patterns in the values present within the range will also prevail outside the range
extrapolation
true or false: a MA4 forecast would be smoother than a MA12 forecast
false
the process is complete and does not require additional processing
finished goods
the inputs to the news vendor model include all of the following except -underage cost -overage cost -fixed cost -demand forecast
fixed cost
order a predetermined amount each time an order is placed
fixed order quantity (EOQ)
the difference between a forecasted value and the realized vlaue
forecast error
process of predicting a future event -production -inventory -personnel -facilities
forecasting
capabilities needed for effective inventory management
forecasting data tracking data analysis storage and material handling
among all paths in a project, a critical path -has the shortest duration -has 0 slack -has the fewest number of activities -none of the above
has 0 slack
disadvantages of inventory
high costs difficult to control - variability hides production and quality problems
which of the following is TRUE regarding the economic order quantity (EOQ) model? -demand rate is dependent on order quantity -ordering cost per order is dependent on order quantity -holding cost per unit per year is independent of order quantity -holding cost per unit per year is dependent on the selling price per unit
holding cost per unit per year is independent or oder quantity
the ratio of the cost to hold an item in inventory during a designated time period relative to the cost to purchase the item
holding cost percentage
-demand rate is uniform and constant at R units per year -delivery lead time is zero (instant deliveries) -unit purchase (or variable production) cost is unaffected by order size -annual cost to place orders (or to setup for production) is proportional to the number of orders (or setups) needed. -annual inventory holding cost is proportional to the average inventory level during the year
ideal conditions
ways to reduce demand uncertainty
improve quality of the forecast product pooling
their correlation is 0 when the outcome of one event has no relationship to the outcome of the other event tends to reduce the uncertainty
independent product pooling
the variables influencing the dependent variable
independent variable
raw materials --> components --> work in process --> finished goods --> distribution inventory --> maintenance repair and operating supplies
inventories in the supply chain
the number of flow units within the process
inventory
the cost incurred to properly store, maintain, and insure inventory
inventory storage cost
erratic, unsystematic, 'residual' fluctuations due to random variation or unforeseen events - things we cannot control short duration and non-repeating
irregular component
which of the following statement is TRUE regarding the optimal order quantity that maximizes expected profit? -it always is equal to the mean of the demand distribution -it is a balance between the salvage value and the underage cost -it is a balance between the underage cost and overage cost -more should be ordered when the overage cost exceeds the underage cost
it is a balance between the underage cost and overage cost
when making periodic forecasts, it is important to -make sure the actual value exceeds the forecast value -make sure the forecast value exceeds the actual value -make sure the errors are within reasonable bounds -make sure the forecast value is outside a reasonable bound
make sure the errors are within reasonable bounds
-3 months to 3 years -sales and production planning, budgeting
medium range forecast
when on had inventory falls below a predetermined minimum level, order enough to refill up to the maximum level
min-max system
'buffer stock' is the level of stock -half of the actual stock -at which the ordering process should start -minimum stock level below which actual stock should not fall -maximum stock in inventory
minimum stock level below which actual stock should not fall
exponential smoothing - closer to 1 the ______ it will be
more reactive
-good for short term forecasts- 1 to 2 periods in the future -requires at n periods of date minimum to use -must have stable times series - no trend, no seasonality -lags behind changes in the patterns
moving average
a forecasting method that predicts that the next value will be the average of the most recent observed values
moving average method
-simple to use -virtually no cost -quick and easy to prepare -data analysis is non existent -easily understandable -cannot provide high accuracy -But, can be a standard for accuracy
naive forecast
a forecasting method that predicts that the next value will be like the last realized value
naive forecasting method
the cost associated with losing value over time because of either technological change or shifts in fashion
obsolescence cost
the income not earned on the amount
opportunity cost of capital
the probability that demand during lead time wont exceed on hand inventory
order cycle service level
the cost of ordering one or more unit than what you would have ordered had you known demand in other words, suppose you had left over inventory (i.e., over ordered) is the increase
overage cost
product pooling is most effective when the demand for product is .....
positively correlated
the strategy to reduce the variety offered to customers by combining or pooling, similar products taking two or more items and basically make them into one item
product pooling
-based on human judgement, opinions; subjective and non mathematical can incorporate latest changes in the environment and "inside information" can bias the forecast and reduce forecast accuracy
qualitative forecast method
based on mathematics; quantitative in nature consistent and objective; able to consider much information and data at one time often quantifiable data are not available. only as good as the data on which they are based
quantitative forecast method
a strategy that increases supply flexibility to allow a response to updated information about demand.
quick response
has not been "worked on"
raw material
inventory types
raw material work in process finished goods safety inventory
statistical process of estimating the relationship of one variable with multiple influences
regression analysis
the inventory level at which we place a new order
reorder point
1-(service level)
risk of a stockout
location pooling
risk pooling
inventory needed to buffer against demand uncertainty. also called safety stock. can be raw materials, work in process or finished goods
safety inventory
looking at the historical data, there are two peaks and troughs that can be seen. there is a medium forecast horizon and moderate preparation time. which forecasting method should be selected? -moving average -causal regression models -seasonsal -exponential smoothing
seasonal
regular pattern of up and down fluctuations due to weather, customs, etc. occurs within 1 year if you have regular peaks four periods apart
seasonal component
-up to 1 year; usually < 3 months -job scheduling, worker assignments
short-range forecast
exponential smoothing - closer to zero the ___ the forecast will be
smoother
taking out the highs and lows, the irregularities larges the time periods, the smoother it is
smoothing method
costs associated with theft or product
spoilage and shrinkage costs
1. collect data, include old data forecasts and the actual demand outcomes 2. establish the forecasting method: decide on the balance between subjective and objective data while looking for trends and seasonality 3.forecast future demand using forecasting method 4. make decision based on step 3 5. measure the forecast error; look for biases and improve the process
steps to implementing a process
occurs when a customer demands an item that is not available in inventory
stockout
the result of not having a product when the customer wants can vary from the customer coming back later to not only losing the sale but having the customer take their business to another store
stockout consequences
an approach to forecasting that uses nothing but demand data
time series - based forecast
analysis of old demdna
time series analysis
assumes info needed to generate a forecast is contained in a time series data assumes the future will follow patterns as the past
time series model
true or false: the critical ratio tells us the service level we should try to provide
true
true or false: the newsvendor problems occurs to something quantity where the expected gain from Qth unit equals the expected loss from it
true
