ch 13
density function
a function that returns the probability a given outcome occurs for a particular statistical distribution
distribution function
a function that returns the probability the outcome of a random event is a certain level or lower
assemble-to-order
a make-to-order system in which a product is assembled from a set of standardized modular components after an order is received
mass customization
a make-to-order system in which each customer's order is unique, customized to his or her exact preferences
standard normal distribution
a normal distribution with mean 0 and SD 1
make-to-order
a production system in which an item's production begins after the customer for the item is known. in a make-to-order system, units are generally delivered to a customer immediately after production is completed, thereby not spending time in inventory
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 inc supply flexibility to allow a response to updated info about demand. ex: w/ quick response, a firm can obtain additional supply for products that are selling above expectation, thereby reducing the # of stockouts
reactive capacity
capacity that allows a firm to react to changes in its demand forecast
mismatch costs
costs related to a mismatch b/w demand and supply. these usually include the cost of leftover inventory and the opportunity cost of stockouts
round up rule
if the probability you look up in a statistical table falls b/w 2 entries, choose the one with the larger probability
underage cost
the cost of ordering one unit too few; that is, the cost of under ordering by one unit. it is represented with the variable Cu
overage cost
the cost of ordering one unit too many; that is, the cost of over ordering by one unit. represented by Co
stockout
the event in which one or more customers are unable to purchase a unit b/c inventory is not available
expected inventory
the expected # of units not sold at the end of the season and that therefore must be salvaged
expected sales
the expected # of units sold during the season at regular price
expected profit
the expected profit earned from the product, including the consequences of leftover inventory
max profit
the highest possible expected profit. this occurs when inventory is available for all customers
in-stock probability
the probability that all demand was able to purchase a unit
stockout probability
the probability that some demand was not able to purchase a unit; that is, that demand experiences a stockout
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 ration
the ratio of the underage cost to the sum of the overage cost and the underage cost
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
