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.
