TOM 3010 Last week
A shipping company charges two fees for delivery: (1) $5 to do the delivery, and then (2) $.50 per pound delivered. Which is the order cost?
$5
Match the model with the appropriate setting. 1. Newsvendor 2. Order-up-to
1. Single order for a sales season 2. Multiple orders over a long time horizon
A retailer has two merchandizers, Sue and Bob, who are responsible for setting order quantities for the products they manage. For all of their products, the critical ratio is 0.7 and the coefficient of variation of their demand forecasts is 0.35. At the end of the season, Sue is proud to report that she has sold the entire inventory she purchased. Bob, on the other hand, sold only about a third of his products. Who is more likely to be choosing quantities that maximize expected profit?
Bob because he is probably ordering more than the mean of the demand forecast. Correct
Which container is best for smaller quantities?
Case
Select all that apply Which assumptions of the EOQ model are at the heart of the saw-toothed inventory pattern?
Constant demand rate Reliable lead time
Click and drag on elements in order 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
Select all that apply Which of the following are inputs to the newsvendor model?
Cost of ordering too little Cost of ordering too much
True or false: The EOQ grows at the same rate as demand grows.
False
Which item has the highest underage cost?
Selling price is $500, Purchase price from supplier is $100
Consider two products, X and Y, that have identical cost, retail price, and demand parameters and the same short selling season (the summer months from May through August). The newsvendor model is used to manage inventory for both products. Product X is to be discontinued at the end of the season this year and the leftover inventory will be salvaged at 75 percent of the cost. Product Y will be reoffered next summer, so any leftovers this year can be carried over to the next year while incurring a holding cost on each unit left over equal to 20 percent of the product's cost. The quantity of each product is selected to maximize expected profit. How do those quantities compare?
The quantity of product Y is higher. Correct
If the rate of demand increases, the EOQ cost will grow at __ _____ rate.
a slower
To use the graph method to find Q*, you first find the point on the y-axis that equals the ___ , ___.
critical, ratio
To reduce the average inventory level the order quantity must _______.
decrease
As the holding cost per unit increases the economic order quantity _________.
decreases
The expected gain associated with holding the Qth unit in inventory ______ as Q increases.
decreases
When demand doubles the annual EOQ cost as a percentage of the annual purchase cost decreases, but at a _____ rate.
decreasing
In the order-up-to inventory model, the order quantity equals the ___ in the previous period.
demand
One input to the newsvendor model is a ___ forecast.
demand
The backorder is the amount of ___ that has occurred but not been satisfied.
demand
To calculate the EOQ cost per unit, divide C(Q) by ___ the rate.
demand
The greater the holding cost per unit of time the _______ the EOQ cost per unit of time.
greater
The greater the mean of a Poisson distribution the ______ its standard deviation.
greater
If an organization orders more than the quantity that maximizes expected profit the in-stock probability will be ________ the critical ratio.
greater than
For a given order quantity, if the demand rate increases, then the ordering cost per unit of time will _______.
increase
If the standard deviation of the demand distribution increases--and everything else remains the same--then the expected inventory ______.
increases
A period's order quantity = order-up-to ___ ,inventory position
level
The order-up-to ___ is the desired inventory position after an order is submitted.
level
The order-up-to__ is the desired inventory position after an order is submitted.
level
On- __ inventory is not available to serve demand at the moment.
order
In the _______ model, the order quantity in each period equals the demand in the previous period.
order-up-to inventory
Expected ___ = Q - Expected inventory
sales
To find the optimal order quantity using the standard normal distribution you first find the optimal order quantity for the ________ distribution.
standard normal
Expected sales measures those sold at _________ price. Multiple choice question.
the regular
The overage cost is a per ___ cost.
unit
The mean of the standard normal distribution is ___ .
0 or zero
The mean of the standard normal distribution is ___.
0 or zero
The EOQ model assumes what percentage of inventory is lost to spoilage/damage?
0%
The standard deviation of the standard normal distribution is ___ .
1 or one
Poisson mean over n periods = (n x Poisson mean over ___period)
1, one, or single
Click and drag on elements in order Order the events that occur during a period.
1. Submit an order for additional inventory 2. orders received from supplier 3. random demand occurs
Match the objective with the ordering policy. 1. Maximize expected profit 2. High customer service
1. according to critical ratio 2. according to desired in-stock probability
Match the axis with the quantity you are looking for in the graph method. 1. y-axis 2. x-axis
1. critical ratio 2. Q*
Match the quantity with the outcome to describe the scenario where expanded product variety leads to profitability. 1. operational efficiency 2. total demand
1. decrease 2. increase
Match the outcome with the "pain." 1. too much 2. too few
1. inventory sold at a deep discount 2. lost sales and profits
Match system with production behavior. 1. pull 2. push
1. produce when demand has occurred 2. produce in anticipation of future demand
Match the standard deviation with the bell curve shape. 1. small standard deviation 2. large standard deviation
1. tall and lean 2. short and wide
Suppose the distribution for demand for one period has mean of 20 and standard deviation of 5. The standard deviation of the corresponding four period demand distribution is?
10
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
Select all the expected demand levels that would match the Poisson distribution.
4 14
Suppose a firm calculates that the EOQ for a product is 5,500 units. However, it's supplier offers a volume discount on the purchase price if 5,000 units or more are ordered. What should be the order quantity?
5,500 units
Which Excel function is used to find the optimal order quantity for the standard normal distribution?
=Norm.s.inv(Critical ratio)
Salvage value is applied to units during which period?
After the selling season
Which assumption of the EOQ model (partially) enables it to ignore the purchasing cost per unit of time?
All orders met from inventory
Which example suggests expanded product variety could lead to an increase in profitability?
An auto customer who only wants a hybrid vehicle buying a newly introduced hybrid sedan.
Which of the following changes in the in-stock probability increases the order quantity the most?
An increase in the in-stock probability from 80 Percent to 95 Percent.
If the order quantity doubles, what happens to the frequency of orders (i.e., the number of orders submitted per unit of time)?
Decreases by 50 percent.
Click and drag on elements in order Order the steps in the process for finding the order quantity that maximizes expected profit.
Evaluate the critical ratio. 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.
Suppose the newsvendor model is used to manage inventory. Which of the following can happen when the order quantity is increased by one unit?
Expected leftover inventory increases by less than one unit.
The order quantity prescribed by the newsvendor model optimizes which performance metric?
Expected profit
A newsvendor faces normally distributed demand and the critical ratio is 0.8. If the profit-maximizing quantity is ordered, which of the following statements is true?
Expected sales are less than expected demand. Correct
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
True or false: Expected profit always increases as in-stock probability increases.
False
True or false: The inventory position only counts inventory that is on hand.
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
Which step is performed differently in the statistical table and computer methods?
Finding the optimal order quantity for the standard normal distribution
The EOQ minimizes the sum of the ordering cost and which of the following costs?
Holding cost
Select all that apply Which costs are actually impacted by the ordering decision?
Holding cost per unit of time Order cost per unit of time
Which costs should be considered when determining whether a firm should order enough to qualify for a volume discount?
Holding costs Purchase costs Order costs
Identify the formula used to calculate inventory position.
Inventory position = On-order inventory + On-hand Inventory - Backorder
Which of the following is NOT an assumption of the EOQ model?
It is possible to receive a purchase discount if the order quantity is sufficiently large.
Select all that apply Which of the following are the roles of a distribution center in a supply chain.
Maintain inventory on the shelf. Ship products to retail stores.. Receive product from suppliers.
Which of these Excel functions are needed to calculate l(z)?
NORM.S.DIST
Which of the following would NOT be counted in the holding cost per unit?
Order processing fee
Select all that apply Which of the following factors are involved in the calculation of expected profit?
Order quantity Expected inventory Expected sales
Which requires specialized equipment to move?
Pallet
Product substitution occurs when customers who find their preferred product unavailable do which of the following?
Purchase another, similar product
Which has the highest overage cost?
Purchase price is $100, Salvage value is $0
In-stock probability = F(___)
Q, order quantity, or quantity
If a firm wanted to reduce the annual EOQ cost as a percentage of the annual purchase cost by 50 percent, how would the demand rate have to change?
Quadruple.
Sarah is a buyer for a department store. A supplier offers her a 5 percent discount if she triples her usual order quantity. Which of the following best explains why Sarah should take the deal?
Sarah knows that even though she may triple her order quantity, this would increase her operating costs by far less than a factor of three.
What is salvage value?
The price at which units are sold at the end of the selling season
A change in which of the following results in a change in the maximum profit in a newsvendor setting?
The regular selling price of the product. Correct
A company uses the newsvendor model to manage its inventories and faces normally distributed demand with a coefficient of variation of 0.75. The company decides to order a quantity that exactly equals the mean of its demand forecast. Which of the following is true regarding this company's performance measures?
There is a 0.50 probability that there is enough inventory to serve all demand.
Vetox sells industrial chemicals. One of their inputs can be purchased in either jugs or barrels. A jug contains one gallon, while a barrel contains 55 gallons. The price per gallon is the same with either container. Vetox is charged a fixed amount per order whether it purchases jugs or barrels. The inventory holding cost per gallon per month is the same with either jugs or barrels. Vetox chooses an order quantity to minimize ordering and holding costs per year. Would Vetox purchase a greater number of gallons with each order if it purchased with jugs or with barrels?
They might order a greater number of gallons with jugs or with barrels, depending on various factors like the demand rate, ordering cost, and holding cost.
Expected profit is also based on the consequences of inventory that needs to be salvaged.
True
True or false: The EOQ, Q*, minimizes the sum of the ordering and holding costs per unit of time.
True
True or false: The optimal order quantity for the standard normal distribution can be negative
True
True or false: The period (time between two ordering opportunities) is always of the same duration.
True
If a firm must order by the case, cases hold 60 units, and the EOQ is 120, then how many cases should the firm order?
Two cases
Suppose the newsvendor model describes a firm's operations decision. Is it possible to have positive stockout probability and positive expected leftover inventory? Choose the best answer.
Yes. A firm does not stock out and have leftover inventory at the same time, but the stockout probability can be positive even though there is positive expected leftover inventory.
Ensuring sufficient demand suggests offering ______ variants of the same product.
a few
The key advantage of a pallet is that they enable the movement of a large quantity of goods, _____.
both quickly and safely
In the saw-toothed inventory pattern, inventory decreases at the ______ rate of demand.
constant
In the order up-to model lead time is _________.
constant and known
The newsvendor chooses an order quantity by comparing the expected ___ of the Qth unit with the expected benefit.
cost
The role of a __ center is to receive product from suppliers, store inventory, and ship products to retail stores.
distribution
The role of a ___ center is to receive product from suppliers, store inventory, and ship products to retail stores.
distribution
The EOQ cost as a percentage of the purchase cost ____ depend on the order quantity.
does
The assumption in the economic order quantity model is that the order cost ______ depend on the size of the order.
does not
Product substitution ______ total demand.
does not change
Processes with setup times are said to exhibit ___ of scale.
economies
The more product variety offered the harder it is to attain the ___ of scale needed to be profitable.
economies
If the critical ratio is 50% then the underage must be ______ the overage.
equal to
Select all that apply To compute expected sales for a given order quantity you need to know or compute which of the following:
expected inventory the order quantity
As the order quantity decreases which performance metric that impacts expected profit decreases?
expected sales
When placing a single order in the face of uncertain demand organizations have to balance having "too much" against having "too __
few, little, or less
If the expected benefit of having a 300th unit in inventory is ________ the expected cost of having a 300th unit then the Newsvendor model prescribes an order quantity that is at least 300 units.
greater than
As more periods are combined, the standard deviation of the distribution of demand for the combination of periods becomes _________.
higher
For a given normal distribution, the higher the order quantity the ______ the corresponding z value.
higher
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 lower the demand, the ______ the percentage of purchase costs required for ordering and holding.
higher
For large order quantities, the ______ cost dominates.
holding
The _______ cost per unit represents all of the costs associated with keeping a unit of inventory for a period of time.
holding
The annual _______ cost increases as the order quantity increases.
holding
The probability that enough inventory is available to satisfy all demand is called the ___ probability.
in-stock
Stockout probability = 1 - ___ probability.
in-stock, instock, or in stock
The expected loss associated with holding the Qth unit in inventory ______ as Q increases.
increases
The EOQ model assumes that associated with each order, aside from the cost of purchasing the actual items, is an order-related cost that is ______ of the amount ordered.
independent
Expected ___ must be salvaged.
inventory
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
The economic order quantity is the order quantity where the order cost per unit of time _______ the holding cost per unit of time.
is equal to
Order quantities that are close to the EOQ tend to be __________ expensive than the EOQ.
just a little more
Just like large setup times suggest producing in large batches, high order costs suggest ordering in ____ quantities.
large
The disadvantage of a pallet is that one pallet's worth of goods is typically a ______ quantity.
large
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 larger the optimal order quantity for the standard normal distribution the ______ the optimal order quantity for the true demand distribution.
larger
The larger the order quantity, the ______ the average inventory level.
larger
The more periods considered, the ______ the mean of the Poisson distribution for demand during that period.
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
Once an order is placed, it takes a supplier two weeks to deliver the order. In this case, two weeks is known as the supplier ____ time.
lead
Replenishment orders are received after a fixed amount of time called the ___ time.
lead
The __ time for an order is the time between when an order is placed with the supplier and it is received by the customer. (Enter only one word per blank.)
lead
In the EOQ model, supplier ____ are assumed to be reliable.
lead times
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
If the critical ratio is .6, there is a 60% chance that demand is _______ the optimal order quantity Q*:
less than or equal to
For a given order up-to level (S), the higher the inventory position the ______ the order quantity.
lower
The larger the order quantity for a given demand rate, the ______ the ordering cost per unit of time.
lower
The more units that are backordered, the _____ the inventory position.
lower
A firm evaluates its EOQ quantity to equal 180 cases, but it chooses an order quantity of 200 cases. Relative to the order quantity of 180 cases, the order quantity of 200 cases has
lower ordering cost and higher holding cost.
Each day, QBlitz, a Seattle-based startup, offers a single product through its website. The product is available for order only on one day, and no other products are available during that day. To add to this odd selling strategy, QBlitz does not post prices for its products. Instead, for each product there is a reserve price. On the day a product is available, customers can submit bids. All of the bids that exceed the reserve price are told at the end of the day that they "won" the product and they pay the price they bid. QBlitz then adds up all of the winning bids and submits an order to a supplier for the needed quantity. If the supplier delivers that quantity, then QBlitz ships the product to the winners once the product is received. However, if the supplier delivers only a portion of the ordered quantity, then QBlitz ships the product to the highest bidders that it can satisfy and notifies the others that they will receive a refund because they will not in fact receive the product. The QBlitz system is best described as
make-to-order
The order-up-to model is appropriate when replenishment occurs _________.
many times
For the normal distribution the peak of the density function is at its _________.
mean
When the order quantity is below the mean of the demand distribution the z value is _________.
negative
In the newsvendor model, the organization can make ______ order(s) for inventory.
one
Both the density and distribution function always return values between zero and
one or 1
For products with low demand, which cost could render them unprofitable?
ordering
The annual ______ cost decreases as the order quantity increases.
ordering
For small order quantities, the ______ dominates.
ordering cost
In the context of managing inventory, a period is the time between when ___ can be placed.
orders
The cost of ordering too many is called the ______.
overage cost
The time between two ordering opportunities is called a ___.
period
If multiple periods are to be combined, the combined demand is the single period demand times the number of ___
periods
Expected ___ = Price x Expected Sales + Salvage value x Expected inventory - Cost per unit x Q
profit
A _____ system produces in anticipation of demand.
push
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
As the order quantity increases the ___ probability decreases.
stockout
The probability that some demand was not able to purchase a unit is called the ___ probability.
stockout
The ordering cost per unit of time is _______.
the result of a managerial decision
The cost of ordering too few is called the ______.
underage cost
The underage cost is a per ___ cost.
unit or item
The Poisson distribution assigns _______ probability to fractional outcomes.
zero
The Poisson distribution assigns _________ probability to negative demand levels.
zero
