Ops Management - Chapter 13
Salvage value is applied to units during which period?
After the selling season
In-stock probability = F( )
Quantity (Q)
Independent/zero correlation
Whether demand for one product is high or low has no impact on demand for the other product.
Maximize expected profit
according to critical ratio
High Customer Service
according to desired in-stock probability
To use the graph method to find Q*, you first find the point on the y-axis that equals the
critical ratio
X-Axis
critical ratio
The expected gain associated with holding the Qth unit in inventory _blank_ as Q increases.
decreases
One input to the newsvendor model is a ___ _forecast
demand
Distribution function
gives the probability that an outcome is a certain level or lower
Density Function
gives the probability that an outcome occurs
As the order quantity, Q, increases, the in-stock probability _blank_.
increases
If the critical ratio is .6, there is a 60% chance that demand is _blank_ the optimal order quantity Q*:
less than or equal to
The expected number of units sold during the season at regular price is called expected
sales
A high _blank_ indicates that some customer will probably not be able to purchase a unit.
stockout probability
Bell Curve of Small standard Deviation
tall and lean
Expected sales measures those sold at _blank_ price.
the regular
The mean of the standard normal distribution is
0
The standard deviation of the standard normal distribution is
1
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 = _blank_.
350
Which Excel function is used to find the optimal order quantity for the standard normal distribution?
=Norm.s.inv(Critical ratio)
What is the process for calculating expected inventory? Place the steps in order, with the first step at the top.
Convert order quantity to Q to a z value Look up expected inventory, given that z value, for a standard normal distribution Convert the expected inventory to the expected inventory for the actual demand distribution
Which of the following are inputs to the newsvendor model?
Cost of ordering too much Cost of ordering too little
Order the steps in the process for finding the order quantity that maximizes expected profit.
Evaluate the critical ratio Use a statistical table or Excel to find the z value that corresponds to the critical ratio Use the z value to calculate the optimal order quantity for the true demand distribution
As the order quantity decreases, which performance metric that affects expected profit also decreases?
Expected Sales
True or false: Demand often follows the standard normal distribution.
False
True or false: Expected profit always increases as in-stock probability increases.
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 - The newsvendor model is for settings where, if inventory is not available to make a sale, that sale is lost.
True or false: Calculating the critical ratio is the final step in determining the optimal order quantity.
False - To determine the correct Z value for the optimal order quantity, the critical ratio must be calculated. Thus, finding the critical ratio is the first step.
Which step is performed differently in the statistical table and computer methods?
Finding the optimal order quantity for the standard normal distribution
positive correlation
If demand for one product is high, then demand for the other product is likely high as well.
Negative correlation
If demand for one product is high, then demand for the other product is likely low.
When placing a single order in the face of uncertain demand, organizations have to balance having "too much" against having "too ____"
Little
Which of these Excel functions are needed to calculate l(z)?
NORM.S.DIST
Y-Axis
Q*
Which of these equations are true?
Sales + Inventory = Q Expected Sales = Q - Expected inventory Expected Sales + Expected inventory = Q
Which item has the highest underage cost?
Selling price is $500. Purchase price from supplier is $100.
Bell Curve of Large Standard Deviation
Short and Wide
To compute expected inventory from a z value, you multiple l(z) by the _blank_ of the demand distribution.
Standard deviation
To evaluate expected inventory by using a table, you would need a table that displays what elements?
The distribution function F(Q) The expected inventory function I(Q)
What is salvage value?
The price at which units are sold at the end of the selling season
Expected profit is partially based on the consequences of inventory that needs to be salvaged.
True
In-stock probability refers to the likelihood that _blank_.
all demand will be satisfied from the firm's inventory
In the newsvendor model, the order quantity is determined _blank_.
before demand is known
The newsvendor chooses an order quantity by comparing the expected _____ of the Qth unit with the expected benefit.
cost
Profit that will be earned from sales of the product, including the consequences of inventory that needs to be salvaged, is called _blank_.
expected profit
If the expected benefit of having a 300th unit in inventory is _blank_ the expected cost of having a 300th unit, then the Newsvendor model prescribes an order quantity that is at least 300 units.
greater than
For a given normal distribution, the higher the order quantity the _blank_.
higher the corresponding z value
The higher the underage cost, the _blank_.
higher the critical ratio
The probability that enough inventory is available to satisfy all demand is called the
in-stock
The probability that enough inventory is available to satisfy all demand is called the _____ probability
in-stock
The expected loss associated with holding the Qth unit in inventory _blank_ as Q increases.
increases
Stockout probability = 1 - ______ _probability
instock
Every unit that is ordered is either sold or left in ____ at the end of the season
inventory
Expected ____ must be salvaged.
inventory
The expected number of units not sold at the end of the season is called expected
inventory
Negative consequence to inventory miscalculation - too much
inventory wasted or sold at deep discount
The round-up rule states that when you are looking up a probability in a statistical table and the probability falls between two entries, you should choose the entry with the _blank_ probability.
larger
The larger the critical ratio, the _blank_ that maximizes expected profit.
larger the order quantity
The underage cost measures _blank_.
lost profits
Negative consequences to inventory miscalculation - too few
lost sales and profit
Expected profit = Maximum profit _____ costs
mismatch
When the order quantity is below the mean of the demand distribution, the z value is _blank_.
negative
The density and distribution functions always return values between zero and
one
In the newsvendor model, the organization can make _blank_ order(s) for inventory.
only one
The cost of ordering too many is called the ___.
overage cost
The density function returns the _____ that a given outcome occurs
probability
Expected ____ = (Price x Expected Sales) + (Salvage value x Expected inventory) - (Cost per unit x Q)
profit
The expected number of units sold during the season at regular price is called expected i
sales
When z = 2, the optimal order quantity should be two ____ above the mean of the actual demand distribution
standard deviation
To find the optimal order quantity using the standard normal distribution, you first find the optimal order quantity for the _blank_ distribution.
standard normal
As the order quantity increases, the _blank_ probability decreases.
stockout
The probability that some demand was not able to purchase a unit is called the ___ probability.
stockout
True or false: The optimal order quantity for the standard normal distribution can be negative.
true - This quantity represents where the optimal order quantity with respect to the true demand distribution lies, with respect to the mean of the true demand distribution.
The overage cost is a per ______ cost
unit