ch 13

density function

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

distribution function

a function that returns the probability the outcome of a random event is a certain level or lower

assemble-to-order

a make-to-order system in which a product is assembled from a set of standardized modular components after an order is received

mass customization

a make-to-order system in which each customer's order is unique, customized to his or her exact preferences

standard normal distribution

a normal distribution with mean 0 and SD 1

make-to-order

a production system in which an item's production begins after the customer for the item is known. in a make-to-order system, units are generally delivered to a customer immediately after production is completed, thereby not spending time in inventory

make-to-stock

a production system in which an item's production begins before the customer for the item is known. in a make-to-stock system, units are generally placed in inventory to await customer demand

quick response

a strategy that inc supply flexibility to allow a response to updated info about demand. ex: w/ quick response, a firm can obtain additional supply for products that are selling above expectation, thereby reducing the # of stockouts

reactive capacity

capacity that allows a firm to react to changes in its demand forecast

mismatch costs

costs related to a mismatch b/w demand and supply. these usually include the cost of leftover inventory and the opportunity cost of stockouts

round up rule

if the probability you look up in a statistical table falls b/w 2 entries, choose the one with the larger probability

underage cost

the cost of ordering one unit too few; that is, the cost of under ordering by one unit. it is represented with the variable Cu

overage cost

the cost of ordering one unit too many; that is, the cost of over ordering by one unit. represented by Co

stockout

the event in which one or more customers are unable to purchase a unit b/c inventory is not available

expected inventory

the expected # of units not sold at the end of the season and that therefore must be salvaged

expected sales

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

expected profit

the expected profit earned from the product, including the consequences of leftover inventory

max profit

the highest possible expected profit. this occurs when inventory is available for all customers

in-stock probability

the probability that all demand was able to purchase a unit

stockout probability

the probability that some demand was not able to purchase a unit; that is, that demand experiences a stockout

statistical economies of scale

the property in which aggregating demand into a large scale tends to reduce uncertainty, as measured by the coefficient of variation

coefficient of variation

the ratio of the standard deviation to the mean

critical ration

the ratio of the underage cost to the sum of the overage cost and the underage cost

product pooling

the strategy to reduce the variety offered to customers by combining, or pooling, similar products

salvage value

the value that can be obtained per unit for inventory left over at the end of the selling season