MGT 3900 Chapter 13

Distribution function

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

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 increases supply flexibility to allow a response to updated information about demand. For example with quick response a firm can obtain additional supply for products that are selling above expectation, thereby reducing the number of stockouts.

Underage cost

The cost of ordering one unit too few; that is, the cost of under ordering by one unit.

Overage Cost

The cost of ordering one unit too many

Density function

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

correlation

a measure of the interaction between two uncertain events ranges from -1 to 1

Standard normal distribution

a normal distribution with a mean 0 and standard deviation 1

make-to-order

a production system in which an item's production begins after the customer for the item is known

reactive capacity

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

Mismatch costs

costs related to a mismatch between demand and supply. These usually include the cost of leftover inventory and the opportunity cost of stockouts

stockout

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

expected inventory

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

Expected sales

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

expected profit

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

maximum profit

the highest possible expected profit

In-stock probability

the probability that all demand is served within an interval of time

Stockout probability

the probability that demand for an item exceeds its inventory during a period of time

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 ratio

the ratio of the underage cost, Cu, to the sum of the overage cost and the underage cost, Cu + Co

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

independent

two events are independent when the outcome of one event has no relationship to the outcome of the other event

negatively correlated

two events are negatively correlated when the outcomes tend to have dissimilar magnitudes. if the outcome of one event is "high," then the outcome of the other event tends to be "low"

positively correlated

two events are positively correlated when the outcomes tend to have similar magnitudes. If the outcome of one event is "high", then the outcome of the other event tends to be "high" as well.