SB chapter 13

1. small standard deviation 2. large standard deviation

1.tall and lean 2. short and wide

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

=Norm.s.inv(Critical ratio)

Which system leads to mismatch costs?

Make-to-stock

Select all the products that are suitable for the make-to-stock system.

Newspapers Groceries

In-stock probability = F(______________).

Q

The standard deviation is a(n) _______ measure of demand uncertainty.

absolute

x-axis -> y-axis ->

critical ratio (y axis) Q* (x axis)

With mass ________, each customer can receive a unique product.

customization

With mass ____________, each customer can receive a unique product.

customization

density function -> distribution function ->

gives probability an outcome occurs gives probability outcome is a certain level or lower

density function -> distribution function ->

gives probability an outcome occurs gives probability outcome is a certain level or lower

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

greater than

The higher the underage cost the ______ the critical ratio.

higher

The overage cost measures the ______ per unit.

loss

_________response is the capability to respond to updated demand information.

quick

______capacity allows firms to react to changes in demand forecast.

reactive

One type of mismatch cost is the cost of having too much_____.

supply

The standard deviation of the standard normal distribution is_________

1 or one

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

What is the process for calculating expected inventory?

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

____________measures the interaction between two uncertain events.

Correlation

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

Suppose a manufacturer assembles a product from component parts only after a customer has placed an order. However, they make the component parts in advance and based on forecasts. This manufacturer is operating what type of system?

a hybrid of the two (make 2 order ,make 2 stock)

One strategy for managing the newsvendor environment is to be able to order additional supply _______ the end of the season.

before

Reducing the purchase cost will impact which metrics:

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

One input to the newsvendor model is a ___________ forecast.

demand

expected ______ must be salvaged

inventory

Maximum profit = Expected demand x _________ per units sold.

profit

The cost of ordering too few is called the ______

underage cost

The overage cost is a per ___________ cost.

unit or item

Both the density and distribution function always return values between zero and _______

1 or one

Which of the following are inputs to the newsvendor model?

Cost of ordering too much Cost of ordering too little

_____________capacity and ________response enable firms to reduce both types of mismatch costs.

Reactive,quick

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

critical ratio

Expected sales = Q - Expected

inventory

Which demand is easier to forecast?

Total demand across a set of products

Match the objective with the ordering policy. Maximize expected profit High customer service

according to critical ratio according to desired in-stock probability

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

after

An increase in demand uncertainty will _______ expected profits.

decrease

For a given coefficient of variation of demand, an increase in the critical ratio will _______ mismatch costs.

decrease

The expected gain associated with holding the Qth unit in inventory ______ as Q increases.

decreases

The least profitable situation has _________.

high coefficient of variation of demand and low critical ratio

Increasing the profit margin relative to the cost of left over inventory will _______ the critical ratio.

increase

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

increases

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

relative

Quick ____________ is the capability to respond to updated demand information.

response

Forecasting methods should be _________.

rigorous and data-driven

When z = 2, the optimal order quantity should be two__________ __________above the mean of the actual demand distribution.

standard deviations

Modular components have _____________interfaces to other components.

standardized

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

stockout

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

stockout

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

stockout or stockouts

One type of mismatch cost is the cost of having too much_________.

supply

Expected sales measures those sold at _________ price.

the regular

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

want variety or different versions of a product

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

1) evaluate critical ratio 2) Find the z value that corresponds to the critical ratio. 3)Use the z value to calculate the optimal order quantity for the true demand distribution.

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

Expected profit

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

Expected sales

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

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

False

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

Finding the optimal order quantity for the standard normal distribution

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

NORM.S.DIST

Which of the following factors are involved in the calculation of expected profit?

Order quantity Expected inventory Expected sales

Quantity for standard normal is less than 0 -> Quantity for standard normal is greater than 0 ->

Order quantity for true demand distribution is less than the mean of the true demand distribution Order quantity for true demand distribution is greater than the mean of the true demand distribution.

Which has the highest overage cost? Purchase price is $50, Salvage value is $0 Purchase price is $100, Salvage value is $0 Purchase price is $100, Salvage value is $50

Purchase price is $100, Salvage value is $0

What is salvage value?

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

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

True

Expecte______________ = Price x Expected Sales + Salvage value x Expected inventory - Cost per unit x Q

cost

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

cost

If the critical ratio is 50% then the underage must be ______ the overage.

equal to

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

expected sales

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

greater than

The _______ the stockout probability, the more likely some customer will not be able to purchase a unit.

higher

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

higher

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

in-stock

Stockout probability = 1 - _____________ probability.

in-stock or instock

An increase in demand uncertainty will ________ mismatch costs.

increase

For a given critical ratio, an increase in the coefficient of variation of demand will ________ mismatch costs.

increase

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

increases

The expected loss associated with holding the Qth unit in inventory ______ as Q increases.

increases

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

inventory

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

inventory

too much -> too few ->

inventory sold at a deep discount lost sales and profits

For a distribution function F(Q), the larger the value of Q, the ______ the probability it returns.

larger

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

larger

The larger the critical ratio the _______ the order quantity that maximizes expected profit.

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 a quantity is ordered such that the in-stock probability is ______ the critical ratio then ordering more will increase the expected profit.

less than

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

The underage cost measures _________.

lost profits

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

made-to-stock

_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

Which system does not have leftover inventory costs?

make-to-order

Which strategies does a hybrid system use?

make-to-order make-to-stock

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

The more leftover inventory costs the ______ likely a make-to-order system is best.

more

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

negative

Both the density and distribution function always return values between zero and

one or 1

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

only one

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

patient

Supply chains often operate on a make-to-order basis when customers are ___.

patient

Product ____________ reduces the variety offered to customers by combining similar products.

pooling

A second strategy for reducing demand uncertainty is product_______

pooling, combining, or combination

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

positively correlated

The density function returns the _____________ a given outcome occurs.

probability

Expected ____________ = Price x Expected Sales + Salvage value x Expected inventory - Cost per unit x Q

profit

One strategy for managing the newsvendor environment is to increase the ____________ margin relative to the cost of left over inventory.

profit

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

quick

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

sales

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

sales

At the end of the season, every unit that is ordered is either____________ by the seller or left in ______________

sold,inventory

To compute expected inventory from a z value you multiple l(z) by the _________ of the demand distribution.

standard deviation

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

standard normal

As the order quantity increases the ___ probability decreases.

stockout

The coefficient of variation of demand is the ratio of:

the standard deviation of demand to expected demand

The mean of the standard normal distribution is __________

zero