Ops Management - Chapter 13

Salvage value is applied to units during which period?

After the selling season

In-stock probability = F( )

Quantity (Q)

Independent/zero correlation

Whether demand for one product is high or low has no impact on demand for the other product.

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-axis that equals the

critical ratio

X-Axis

critical ratio

The expected gain associated with holding the Qth unit in inventory _blank​_ as Q increases.

decreases

One input to the newsvendor model is a ___ _forecast

demand

Distribution function

gives the probability that an outcome is a certain level or lower

Density Function

gives the probability that an outcome occurs

As the order quantity, Q, increases, the in-stock probability _blank​_.

increases

If the critical ratio is .6, there is a 60% chance that demand is _blank​_ the optimal order quantity Q*:

less than or equal to

The expected number of units sold during the season at regular price is called expected

sales

A high _blank​_ indicates that some customer will probably not be able to purchase a unit.

stockout probability

Bell Curve of Small standard Deviation

tall and lean

Expected sales measures those sold at _blank​_ price.

the regular

The mean of the standard normal distribution is

0

The standard deviation of the standard normal distribution is

1

Suppose you are using a statistical table to determine Q, and the critical ratio is .612. If F(300) = .598 and F(350) = .615, then the round-up rule states that you should choose Q = _blank​_.

350

Which Excel function is used to find the optimal order quantity for the standard normal distribution?

=Norm.s.inv(Critical ratio)

What is the process for calculating expected inventory? Place the steps in order, with the first step at the top.

Convert order quantity to Q to a z value Look up expected inventory, given that z value, for a standard normal distribution Convert the expected inventory to the expected inventory for the actual demand distribution

Which of the following are inputs to the newsvendor model?

Cost of ordering too much Cost of ordering too little

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

Evaluate the critical ratio Use a statistical table or Excel to find the z value that corresponds to the critical ratio Use the z value to calculate the optimal order quantity for the true demand distribution

As the order quantity decreases, which performance metric that affects expected profit also decreases?

Expected Sales

True or false: Demand often follows the standard normal distribution.

False

True or false: Expected profit always increases as in-stock probability increases.

False

True or false: 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 - The newsvendor model is for settings where, if inventory is not available to make a sale, that sale is lost.

True or false: Calculating the critical ratio is the final step in determining the optimal order quantity.

False - To determine the correct Z value for the optimal order quantity, the critical ratio must be calculated. Thus, finding the critical ratio is the first step.

Which step is performed differently in the statistical table and computer methods?

Finding the optimal order quantity for the standard normal distribution

positive correlation

If demand for one product is high, then demand for the other product is likely high as well.

Negative correlation

If demand for one product is high, then demand for the other product is likely low.

When placing a single order in the face of uncertain demand, organizations have to balance having "too much" against having "too ____"

Little

Which of these Excel functions are needed to calculate l(z)?

NORM.S.DIST

Y-Axis

Q*

Which of these equations are true?

Sales + Inventory = Q Expected Sales = Q - Expected inventory Expected Sales + Expected inventory = Q

Which item has the highest underage cost?

Selling price is $500. Purchase price from supplier is $100.

Bell Curve of Large Standard Deviation

Short and Wide

To compute expected inventory from a z value, you multiple l(z) by the _blank​_ of the demand distribution.

Standard deviation

To evaluate expected inventory by using a table, you would need a table that displays what elements?

The distribution function F(Q) The expected inventory function I(Q)

What is salvage value?

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

Expected profit is partially based on the consequences of inventory that needs to be salvaged.

True

In-stock probability refers to the likelihood that _blank​_.

all demand will be satisfied from the firm's inventory

In the newsvendor model, the order quantity is determined _blank​_.

before demand is known

The newsvendor chooses an order quantity by comparing the expected _____ of the Qth unit with the expected benefit.

cost

Profit that will be earned from sales of the product, including the consequences of inventory that needs to be salvaged, is called _blank​_.

expected profit

If the expected benefit of having a 300th unit in inventory is _blank​_ the expected cost of having a 300th unit, then the Newsvendor model prescribes an order quantity that is at least 300 units.

greater than

For a given normal distribution, the higher the order quantity the _blank​_.

higher the corresponding z value

The higher the underage cost, the _blank​_.

higher the critical ratio

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

in-stock

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

in-stock

The expected loss associated with holding the Qth unit in inventory _blank​_ as Q increases.

increases

Stockout probability = 1 - ______ _probability

instock

Every unit that is ordered is either sold or left in ____ at the end of the season

inventory

Expected ____ must be salvaged.

inventory

The expected number of units not sold at the end of the season is called expected

inventory

Negative consequence to inventory miscalculation - too much

inventory wasted or sold at deep discount

The round-up rule states that when you are looking up a probability in a statistical table and the probability falls between two entries, you should choose the entry with the _blank​_ probability.

larger

The larger the critical ratio, the _blank​_ that maximizes expected profit.

larger the order quantity

The underage cost measures _blank​_.

lost profits

Negative consequences to inventory miscalculation - too few

lost sales and profit

Expected profit = Maximum profit _____ costs

mismatch

When the order quantity is below the mean of the demand distribution, the z value is _blank​_.

negative

The density and distribution functions always return values between zero and

one

In the newsvendor model, the organization can make _blank​_ order(s) for inventory.

only one

The cost of ordering too many is called the __​_.

overage cost

The density function returns the _____ that a given outcome occurs

probability

Expected ____ = (Price x Expected Sales) + (Salvage value x Expected inventory) - (Cost per unit x Q)

profit

The expected number of units sold during the season at regular price is called expected i

sales

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

standard deviation

To find the optimal order quantity using the standard normal distribution, you first find the optimal order quantity for the _blank​_ distribution.

standard normal

As the order quantity increases, the _blank​_ probability decreases.

stockout

The probability that some demand was not able to purchase a unit is called the ___ probability.

stockout

True or false: The optimal order quantity for the standard normal distribution can be negative.

true - This quantity represents where the optimal order quantity with respect to the true demand distribution lies, with respect to the mean of the true demand distribution.

The overage cost is a per ______ cost

unit