SCM405

Suppose the newsvendor model is used to manage inventories. Which of the following can happen when the order quantity is increased by one unit?

Expected lost sales decreases by less than one unit.

Suppose the newsvendor model describes a firm's operations decision. Is it possible to have positive expected lost sales and positive expected left over inventory? Choose the best answer.

Yes - they are both expectations over numerous possible outcomes, among which there will be no outcome in which both are positive.

A reseller supports a sales team that is responsible for selling a group of products. The reseller plans to use the newsvendor model to guide ordering decisions for these products. How should the total salaries of the sales force be incorporated into the newsvendor model analysis? (Focus only on salaries, i.e., ignore sales bonuses or other forms of compensation.)

Salary costs should not be included in the newsvendor analysis.

Consider two products A and B 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 A is to be discontinued at the end of the season this year, and the leftovers will be salvaged at 75% of the cost. Product B will be re-offered 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% of the product's cost. How do the stocking quantities for these products compare?

Stocking quantity of product B is higher.

O'Neill uses A/F ratios to measure the quality of their forecasting of seasonal items. They use the newsvendor model to choose order quantities. O'Neill improves its forecasting with time. After several seasons of implementing this process which of the following should O'Neill observe:

The maximum A/F ratio should decrease and/or the minimum A/F ratio should increase.

O'Neill sells the same 3mm boot for surfing every year. Because this is a functional product with little fashionable content, O'Neill believes that this is a stable product, i.e., expected demand doesn't change from year to year. However, sales are concentrated in a short period during the summer. O'Neill plans to use sales data from the last five years to forecast demand this year. Those data are 850, 1025, 1000, 990 and 875. Note, due to the short selling season, in two of the seasons O'Neill ran out of boots, whereas in three of those seasons O'Neill had boots left over at the end of the season and they were held over until the next season. What is the mean of the demand forecast?

The mean of O'Neill's demand forecast should be greater than 948.

Suppose a company uses the newsvendor model to manage its inventories and faces normally distributed demand with a coefficient of variation = 1. The company decides to order a quantity that exactly equals its mean demand forecast. Which of the following is true regarding this company's performance measures?

The probability of serving all the demand is 50%

Suppose a firm uses an A/F ratios to come up with demand forecast. The average A/F ratio from historical data turns out to be 0.8. What is the best conclusion that can be drawn from this observation?

There is a bias in the forecasting process: forecasts are on average higher than demand.

In a particular setting where the newsvendor model applies, demand is Normally distributed and the critical ratio is known to be 0.8. Then, if the profit maximizing quantity were ordered,

the expected sales is less than expected demand;