SCGM Ch 13

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

-1

In-stock probability = F(___)

Q

with mass ___ each customer can receive a unique product.

customization

True or false: In a make-to-stock system, an item is produced when its eventual owner is known.

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

If an organization orders more than the quantity that maximizes expected profit the in-stock probability will be ________ the critical ratio.

greater than

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

greater than

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

greater than

tockout probability = 1 - ___ probability

in-stock

___ capacity allows firms to react to changes in demand forecast

reactive

___ capacity and ___ response enable firms to reduce both types of mismatch costs.

reactive quick

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

relative

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

standard normal

Modular components have ___ interfaces to other components

standardized

One type of mismatch cost is the cost of having too much ___

supply

The underage cost is a per ___ cost

unit

Salvage value is applied to units during which period?

After the selling season

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 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

Which item has the highest underage cost?

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

The correlation between demand for two individual products impacts which distribution parameter for the pooled product?

Standard deviation of demand

What is salvage value?

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

maximize high

according to critical according to desired

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

after

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

Make-to-order means _____.

completion of products only occurs after customers announce their demand

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

conservative

What is the process for calculating expected inventory?

convert order look up convert that

___ measures the interaction between two uncertain events

correlation

An increase in demand uncertainty will _______ expected profits.

decrease

One strategy for managing the newsvendor environment is to _______ demand uncertainty.

decrease

One input to the newsvendor model is a ___ forecast

demand

Maximum profit is the highest possible ___ profit

expected

As the order quantity decreases which performance metric that impacts expected profit decreases?

expected sales

True or false: All demand uncertainty can be eliminated with the use of better forecasting methods.

false

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

false

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

false

For a given normal distribution, the higher the order quantity the ______ the corresponding z value.

higher

The higher the in-stock probability, the _______ the likelihood that all demand is satisfied from inventory.

higher

positive negative independent

if demand is high is high as well if d is high d is low whether demand

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

in-stock

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

in-stock

An increase in demand uncertainty will ________ mismatch costs.

increase

An increase in expected demand will ______ maximum profit.

increase

As the order quantity, Q, increases the in-stock probability _______.

increases

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

increases

As the order quantity increases the ___ probability decreases.

instock

Stockout probability = 1 - ___ probability

instock

too much too few

inventory sold at a deep discount lost sales and profit

When there is an opportunity to make a second order, the expected inventory ________ than when there is only one order opportunity.

is less

The higher the desired in-stock probability, the _______ the order quantity that yields that service level.

larger

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

larger

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

larger

If the expected benefit of having a 200th unit in inventory is less than the expected cost then the Newsvendor will prescribe an order quantity that is _______ 200 units.

less than

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

less than or equal to

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

little

The underage cost measures _________.

lost profits

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

The higher the overage cost the ______ the critical ratio.

lower

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

make to order

Mass customization is an example of which type of system?

make to order

Expected profit = Maximum profit - ___ costs

mismatch

In an assemble-to-order system, once an order is received all that remains is to assemble the product from ___ components

modular

When the order quantity is below the mean of the demand distribution the z value is _________.

negative

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

negative

The standard deviation of the standard normal distribution is ___

one

In the newsvendor model, the organization can make ______ order(s) for inventory.

only one

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

patient

A second strategy for reducing demand uncertainty is product ___

pooling

product ___ reduces the variety offered to customers by combining similar products

pooling

Demand for high definition televisions and cables for connecting those televisions to other components is likely _________.

positively correlated

Maximum profit = Expected demand * ___ per unit sold

profit

expected ___ = Price * Expected Sales + Salvage value * Expected inventory - Cost per unit * Q

profit

Make-to-order is effective when production is reasonably _________.

quick

___ response is the capability to respond to updated demand information

quick

quick ___ is the capability to respond to updated demand information

response

Forecasting methods should be _________.

rigorous and data-driven

Expected sales = Q - Expected ___

sales

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

sales

expected ___ = Q - Expected inventory

sales

Expected sales from first order + Expected sales from ___ order = Expected demand (assuming have perfect information regarding demand when placing second order).

second

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

At the end of the season, every unit that is ordered is either ___ by the sellers or left in ___

sold inventory

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

standard deviations

One type of mismatch cost is the opportunity cost of ___; that is the cost of too little supply

stockouts

One type of mismatch cost is the opportunity cost of ___; that is the cost of too little supply.

stockouts

Expected sales measures those sold at _________ price.

the regular

The cost of ordering too few is called the ______.

underage cost

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

want variety

When operating on a make-to-order basis, a product is made ______ demand for that unit is known.

after

Match the axis with the quantity you are looking for in the graph method. Y axis X axis

critical ratio Q23r89fha9

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* =

350

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

Expected profit

Which demand is easier to forecast?

Total demand across a set of products

Two outcomes that are independent appear graphically as _________.

a circle

Two outcomes that are positively correlated appear graphically as _________.

a cluster that angels up

Two outcomes that are negatively correlated appear graphically as:

a cluster that angles down

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

cost

The probability demand is less than or equal to Q*, the quantity that maximizes expected profit, is equal to the ___ ratio

critical

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

critical ratio

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

inventory

expected ___ must be salvaged

inventory

A gallon of milk that you buy from a grocery store is produced in a ______ system.

make to stock

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

make to stock

The coefficient of variation of demand is the ratio of:

the standard deviation of demand to expected demand

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

trtue

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

true

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

true

When determining the best first order quantity, which input changes because of the opportunity to place a second order later?

underage

The mean of the standard normal distribution is ___

zero