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