Operations Management
17th Edition
ISBN: 9781259142208
Author: CACHON, Gérard, Terwiesch, Christian
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 13, Problem 4CQ
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.
- a. No. If there is leftover inventory, then a stockout doesn’t occur.
- b. No. If the stockout probability is positive, then expected inventory must be negative.
- c. No. Actual demand can differ from sales.
- d. 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.
- e. Yes, as long as the underage cost is greater than the overage cost.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose the newsvendor model describes a firm’s operations decision. Is it possible to havepositive stockout probability and positive expected leftover inventory? Choose the best answer. a. No. If there is leftover inventory, then a stockout doesn’t occur.b. No. If the stockout probability is positive, then expected inventory must be negative.c. No. Actual demand can differ from sales.d. 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.e. Yes, as long as the underage cost is greater than the overage cost.
Your firm uses a periodic review system for all SKUS classified, using ABC analysis, as B or C
items. Further, it uses a continuous review system for all SKUS classified as A items. The
demand for a specific SKU, currently classified as an A item, has been dropping. You have been
asked to evaluate the impact of moving the item from continuous review to periodic review.
Assume your firm operates 52 weeks per year; the item's current characteristics are:
Demand (D) = 15,080 units/year
Ordering cost (S) = $125.00/order
Holding cost (H) = $3.00/unit/year
Lead time (L) = 5 weeks
Cycle service level = 95 percent
Demand is normally distributed, with a standard deviation of weekly demand of 64 units.
-Calculate the item's EOQ.
- Use the EOQ to define the parameters of an appropriate continuous review and periodie
review system for this item.
-Which system requires more safety stock and by how much?
-How do you think each system can affect your procurement procedures/methods?
Your firm uses a periodic review system for all SKUS classified, using ABC analysis, as B or C
items. Further, it uses a continuous review system for all SKUS classified as A items. The
demand for a specific SKU, currently classified as an A item, has been dropping. You have been
asked to evaluate the impact of moving the item from continuous review to periodic review.
Assume your firm operates 52 weeks per year; the item's current characteristics are:
Demand (D) = 15,080 units/year
Ordering cost (S) = $125.00/order
Holding cost (H) = $3.00/unit/year
Lead time (L) = 5 weeks
Cycle service level = 95 percent
Demand is normally distributed, with a standard deviation of weekly demand of 64 units.
1- How do you think each system can affect your procurement procedures/methods?
Chapter 13 Solutions
Operations Management
Ch. 13 - Which of the following is NOT true about the...Ch. 13 - A newsvendor orders the quantity that maximizes...Ch. 13 - Prob. 3CQCh. 13 - Suppose the newsvendor model describes a firms...Ch. 13 - Prob. 5CQCh. 13 - Prob. 6CQCh. 13 - A retailer has two merchandizers, Sue and Bob, who...Ch. 13 - Prob. 8CQCh. 13 - Which of the following changes in the in-stock...Ch. 13 - Prob. 10CQ
Ch. 13 - Prob. 11CQCh. 13 - Prob. 12CQCh. 13 - Prob. 13CQCh. 13 - Prob. 14CQCh. 13 - Dan McClure owns a thriving independent bookstore...Ch. 13 - Flextrola, Inc., an electronics systems...Ch. 13 - Monsanto sells genetically modified seed to...Ch. 13 - Fashionables is a franchisee of The UnLimited, the...Ch. 13 - Teddy Bower is an outdoor clothing and accessories...Ch. 13 - Prob. 6PACh. 13 - Goop Inc. needs to order a raw material to make a...Ch. 13 - Geoff Gullo owns a small firm that manufactures...Ch. 13 - Prob. 9PACh. 13 - Prob. 10PACh. 13 - Prob. 11PA
Additional Business Textbook Solutions
Find more solutions based on key concepts
What is precedent, and how does it affect common law?
Business in Action (8th Edition)
There is a huge demand in the United States and elsewhere for affordable women’s clothing. Low-cost clothing re...
Loose-leaf for Operations Management (The Mcgraw-hill Series in Operations and Decision Sciences)
2. In what circumstances might a market-pull approach or a technology-push approach to new-product design be th...
OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in a...
Operations Management: Processes and Supply Chains (12th Edition) (What's New in Operations Management)
Many companies including Company OM tried to implement dynamic pricing in their ticketing system. The dynamic p...
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand will grow at 5% a year. If the company builds a plant that can produce x units of Wozac per year, it will cost 16x. Each unit of Wozac is sold for 3. Each unit of Wozac produced incurs a variable production cost of 0.20. It costs 0.40 per year to operate a unit of capacity. Determine how large a Wozac plant the company should build to maximize its expected profit over the next 10 years.arrow_forwardYour firm uses a periodic review system for all SKUs classified, using ABC analysis, as B or C items. Further, it uses a continuous review system for all SKUs classified as A items. The demand for a specific SKU, currently classified as an A item, has been dropping. You have been asked to evaluate the impact of moving the item from continuous review to periodic review. Assume your firm operates 52 weeks per year; the item’s current characteristics are:Demand 1D2 = 15,080 units/yearOrdering cost 1S2 = $125.00/orderHolding cost 1H2 = $3.00/unit/yearLead time 1L2 = 5 weeksCycle@service level = 95 percentDemand is normally distributed, with a standard deviation of weekly demand of 64 units.a. Calculate the item’s EOQ.b. Use the EOQ to define the parameters of an appropriate continuous review and periodic review system for this item.c. Which system requires more safety stock and by how much?arrow_forwardA company uses the newsvendor model to manage its inventories and faces normallydistributed demand with a coefficient of variation of 0.75. The company decides toorder a quantity that exactly equals the mean of its demand forecast. Which of the following is true regarding this company’s performance measures? a. There is a .50 probability that there is enough inventory to serve all demand.b. Expected inventory equals 50 percent of the mean of the demand forecast.c. The stockout probability is .25.d. Expected inventory is 0.arrow_forward
- Suppose that an organization is engaged in manufacturing and sales of a seasonal product. Based on a sales forecast of 1000, 500, 500, and 2000 per quarter, calculate a level production plan, quarterly ending inventory, and average quarterly inventory. If inventory carrying costs are $7 per unit per quarter, what is the annual cost of carrying inventory? Assume that the opening and ending inventories are zero. (without using Excel)arrow_forwardIn the following scenario, what will your stockout costs be if you have 200 hammers in stock and you have orders of 80, 60, 50, 30, 120 You are a wholesaler selling hammers. You have a carrying cost for each hammer left in inventory of $.30 per unit, ordering cost of $60 per order placed, and a stockout cost of $30 per customer who is not fully satisfied and $3 per hammer for any orders not fulfilled (lost sales). Orders placed arrive in the sixth week after the week in which the order is placed. Smallest orders are filled first. $480 $1,080 $660 $450 $300arrow_forwardSuppose that an organization is engaged in the manufacturing and sales of a seasonal product. Based on a sales forecast of 1000, 500, 500, and 2000 per quarter, calculate a level production plan, quarterly ending inventory, and average quarterly inventory. If inventory carrying costs are $7 per unit per quarter, what is the annual cost of carrying inventory? Assume that the opening and ending inventories are zero. (With steps)arrow_forward
- Suppose that the newsvendor faces integer-valued demand and must choose an integer value of y. We make no assumptions about the demand distribution (other than that it is an integer) or about the relationship between h and p. Prove that y* is the smallest integer y such that F(y) ≥ (r − c)/(r − v) where F is the cdf of the demand distribution. (Hint: Consider calculating the cost difference between two consecutive integer values.)arrow_forwardSuppose that in month 1, both the retailer and the wholesaler in a supply chain ordered 20,000 units. Then in month 2, the retailer decreases its order size by 500 units. If the wholesaler then decreases its order size in month 2 by 700 units, which of the following is TRUE? OA. The wholesaler is contributing to the bullwhip effect. B. Neither amplification nor smoothing is present. OC. The bullwhip measure for the wholesaler equals 0.70. D. The wholesaler is providing both amplification and smoothing. O E. The wholesaler is providing a dampening (anti-bullwhip) effect.arrow_forwardA manager receives a forecast for next year. Demand is projected to be 600 units for the first half of the year and 920 units for the second half. The monthly holding cost is $2 per unit, and it costs an estimated $55 to process an order. a.Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that will minimize the sum of ordering and carrying costs for each of the six-month periods. (Round your answers to the nearest whole number.) Period Order Size 1 – 6 months?_____units 7 – 12 months?_____units b.If the vendor is willing to offer a discount of $10 per order for ordering in multiples of 50 units (e.g., 50, 100, 150), would you advise the manager to take advantage of the offer in either period? If so, what order size would you recommend? (Round intermediate calculations to 2 decimal places.) Period Order Size 1 – 6 months?____ units 7 – 12 months?____…arrow_forward
- Answer the following true or false.d. ABC analysis ranks items according to the annual value of their demandarrow_forwardNutmeg Inc. uses the LIFO method to account for inventory. During years in whichinventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most likely be:A. lower than it would be if the company used the FIFO method.B. higher than it would be if the company used the FIFO method.C. about the same as it would be if the company used the FIFO method.arrow_forwardA customer buys 1 ABC Jan 35 put for a premium of $3 and simultaneously buys 100 shares of ABC stock for $35 per share. The customer will break even when the stock is selling for what price per share at expiration?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Inventory Management | Concepts, Examples and Solved Problems; Author: Dr. Bharatendra Rai;https://www.youtube.com/watch?v=2n9NLZTIlz8;License: Standard YouTube License, CC-BY