TOM3010: Chapter 13: Inventory Management with Perishable Demand Smartbook

In-stock probability = F(______)

Blank 1: Q, order quantity, or quantity

If the probability demand is less than or equal to Q*, the quantity that maximizes expected profit is equal to the ________ ratio.

Blank 1: critical

To use the graph method to find Q*, you first find the point on the y-axis that equals the ________ __________.

Blank 1: critical Blank 2: ratio

One input to the newsvendor model is a ________ forecast.

Blank 1: demand

Expected _________-= (Price x Expected Sales) + (Salvage value x Expected inventory) - (Cost per unit x Q)

Blank 1: profit

The expected gain associated with holding the Qth unit in inventory _blank​_ as Q increases.

decreases

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

A high _blank​_ indicates that some customer will probably not be able to purchase a unit.

stockout probability

Drag each negative consequence to the inventory miscalculation that caused it. too much<-------> too few<------->

too much<------->inventory wasted or sold at a deep discount too few<------->lost sales and profits

Click and drag on elements in order What is the process for calculating expected inventory? Place the steps in order, with the first step at the top.

1. Convert order quantity Q to a z value. 2. Look up expected inventory, given that z value, for a standard normal distribution. 3. Convert that expected inventory to the expected inventory for the actual demand distribution

Click and drag on elements in order Order the steps in the process for finding the order quantity that maximizes expected profit.

1. Evaluate the critical ratio 2. Use a statistical table or Excel to 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

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)

Salvage value is applied to units during which period?

After the selling season

The mean of the standard normal distribution is _______.

Blank 1: 0 or zero

The standard deviation of the standard normal distribution is _____.

Blank 1: 1 or one

The newsvendor chooses an order quantity by comparing the expected _______ of the Qth unit with the expected benefit.

Blank 1: cost

When placing a single order in the face of uncertain demand, organizations have to balance having "too much" against having "too ________."

Blank 1: few, little, or less

The probability that enough inventory is available to satisfy all demand is called the __________ probability.

Blank 1: in-stock

Stockout probability = 1 - ____________ probability.

Blank 1: in-stock, instock, or in stock

Every unit that is ordered is either sold or left in ________ at the end of the season.

Blank 1: inventory

Every unit that is ordered is either sold or left in _________ at the end of the season.

Blank 1: inventory

Expected ___________ must be salvaged.

Blank 1: inventory

The expected number of units not sold at the end of the season is called expected ________.

Blank 1: inventory

The density and distribution functions always return values between zero and _________.

Blank 1: one or 1

The density function returns the ___________ that a given outcome occurs.

Blank 1: probability

The expected number of units sold during the season at regular price is called expected ________.

Blank 1: sales

The probability that some demand was not able to purchase a unit is called the ________ probability.

Blank 1: stockout

The underage cost is a per ________ cost.

Blank 1: unit or item

Select all that apply Which of the following are inputs to the newsvendor model?

Cost of ordering too much Cost of ordering too little

Select all that apply Which of these equations are true?

Expected Sales + Expected inventory = Q Expected Sales = Q - Expected inventory Sales + Inventory = Q

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 Reason: Demand never follows the standard normal; in fact the standard normal can return negative values.

True or false: Expected profit always increases as in-stock probability increases.

False Reason: Every unit ordered that is in excess of what is needed to have an in-stock probability that is equal to the critical ratio decreases the expected profit.

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 Reason: 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 Reason: 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

Drag each ordering policy to the objective it serves. Maximize expected profit<------> High customer service<------>

Maximize expected profit<------>According to critical ratio High customer service<------>According to desired in-stock probability

Which of these Excel functions are needed to calculate l(z)?

NORM.S.DIST

Select all that apply Which of the following factors are involved in the calculation of expected profit?

Order quantity Expected inventory Expected sales

Which has the highest overage cost?

Purchase price is $100, Salvage value is $0

Drag each order quantity for true demand distribution to the appropriate quantity for standard normal. Quantity for standard normal is less than 0<-------> Quantity for standard normal is greater than 0<------->

Quantity for standard normal is less than 0<------->Order quantity for true demand distribution is less than the mean of the true demand distribution. Quantity for standard normal is greater than 0<------->Choice Order quantity for true demand distribution is greater than the mean of the true demand distribution.

Select all that apply 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 Reason: Expected profit is calculated based on both what is sold and what is left over at the end of the period.

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

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

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 expected loss associated with holding the Qth unit in inventory _blank​_ as Q increases.

increases

For a distribution function F(Q), the larger the value of Q, the _blank​_ the probability it returns.

larger

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 optimal order quantity for the standard normal distribution, the _blank​_ for the true demand distribution.

larger the optimal order quantity

The higher the desired in-stock probability, the _blank​_ that yields that service level.

larger the order quantity

The larger the critical ratio, the _blank​_ that maximizes expected profit.

larger the order quantity

If a quantity is ordered such that the in-stock probability is _blank​_ 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 _blank​_ 200 units.

less than

The overage cost measures the _blank​_ per unit.

loss (profit lost)

The underage cost measures _blank​_.

lost profits

For the normal distribution bell shape, the peak of the density function is at the _blank​_ of the distribution.

mean

When the order quantity is below the mean of the demand distribution, the z value is _blank​_.

negative

Drag each bell curve shape to the deviation it represents, in comparison to the density function for a normal distribution bell. small standard deviation<-----> large standard deviation<----->

small standard deviation<----->tall and lean 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 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

Expected sales measures those sold at _blank​_ price.

the regular