Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SCM 352-1004 > Final Exam Midterm Review > Flashcards

Final Exam Midterm Review Flashcards

1
Q

What is forecasting?

A

Prediction
- predicting when or how big of the impact
- Best guess about what will happen in the future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What can over forecasting cause?

A

Excessive Inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What can under forecasting cause?

A

Loss of sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the only certain thing about forecasting?

A

The only certain thing about a forecast is that it will be wrong

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a source of major productivity improvements?

A

Reducing Forecast Errors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the elements of good forecasting?

A
  • Modeling
  • Constant Updating (as new data comes in)
  • Intuition
  • Risk-taking
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the forecast breakdown for heirarchy?

A

Corporate - Merger and Acquisition Decision
\/\/\/
Business - New Product Introduction
\/\/\/
Functions - Operations: capacity, inventory, process, quality, supply chain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is an accurate statement about forecast accuracy?

A

As the forecast horizon increases, forecast accuracy decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is considered long term forecasting? and examples.

A

2+ years
- Long-range marketing program
- Facility planning

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is considered medium term forecasting? and examples.

A

2 months - 2 years
- Production Planning
- New Product Introduction
- Capital Budgeting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is considered short term forecasting? and examples.

A

0 - 3 months
- Work Force Scheduling
- Inventory Management
- Demand Forecasting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the two forecasting methods?

A

Qualitative and Quantitative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the application for Qualitative and Quantitative Forecasting?

A

Qualitative = Long-term and medium-term forecast

Quantitative = Short-term forecast

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the description for Qualitative forecasting?

A
  • Subjective
  • Based on people’s opinions (opinion matters)
  • No specific models (may lack of reliable past data)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the description for Quantitative forecasting?

A
  • Objective
  • Based on numeric data and models (historic data matters)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are some method examples for Qualitative forecasting?

A
  • Delphi Method (A panel of experts)
  • Market Surveys (questionnaires to gather data on market conditions)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are some method examples for Quantitative forecasting?

A
  • Time Series forecasting methods (e.g. Naive, moving average, exponential smoothing)
  • Casual Forecasting Methods (linear regression)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is short-term demand forecasting focused on?

A

What’s the product / service demand for the next time period (week, month, year)?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the time series methods under Short-Term demand forecasting? How many?

A

4 time series methods
- Naive method
- (Simple) moving average
- Weighted moving average
- Exponential Smoothing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is a characteristic of an unrealistic demand pattern?

A

If the forecast is steady (in a straight line) for a long period.
i.e. Demand doesn’t fluctuates and stays in a straight line in one area of the mean (constant of 150 over a 10 week period)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are characteristics of a realistic demand patterns?

A
  • Fluctuates about a constant mean
  • Fluctuates and an increasing (or decreasing) trend
  • Fluctuates and has “seasonal” patterns (i.e. sales of winter jackets, summer shorts)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the general steps (procedure) for the four forecasting methods?

A

Dt —> At —> Ft+1
Step 1: Based on given demand (D) information, calculate average (A) i.e., a statistic for past demand

Step 2: Use the A to inform demand (F) for the next period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the notations in the general steps for forecasting quantitative methods?

A

Dt = Demand (D) = Observed/realized demand in period (t)

At = A statistic of past demand through period t (an average of past demand)

Ft+1 = Forecasted demand for a time period t

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

How do you calculate error for period (t)?

A

et = D1 - Ft

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What can be said about the four forecasting methods (similarities)?

A

The four forecasting methods are basically the same method, but with different weighting schemes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the Naive method used for?

A

The Naive method only uses the most recent demand to generate a forecast for the next period
- Next period’s forecast = this periods sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the formula for the naive method?

A

At = (100%)Dt = Dt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Explain the steps to get the forecast (F) in the naive method?

A

Get the demand (should already be provided), carry that over to the Naive Average (A) so that the demand equals the naive average (they are the same) and then carry A down to the forecast for the next period - the previous periods Naive Average (A) is the next periods Forecast (A) so if Period 2’s A is 150, then F for period 3 is 150.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is an alternative formula for the Naive Method?

A

A1 = D1, A1 = F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is the (Simple) Moving Average method used for?

A

The simple moving average forecast (with order N) uses the N (most recent period’s) demands to generate a forecast for the next period
- Managerial Decision = N

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the formula for Simple Moving Average method?

A

At = EDt / N

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What are the procedure for the Simple Moving average method?

A

Step 1: At = Dt + D t-1 + …. + Dt-N+1 / N

Step 2: At = Ft+1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is an example for the formula for Simple Moving Average method if N = 3?

A

*** We can use the method “three-period” moving average

A3 = D3 + D2 + D1 / 3 —–> average of demands in periods 3,2,1
and repeat the steps down
A4 = D4 + D3 + D2 /3 and so on

The forecast (F) for the next period is the previous period average (A).
Example = If A3 = 126, then F4 = 126

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What is the Weighted Moving Average method used for?

A

This method is based on the weighted average of the past N periods.

  • Managerial decision: N & Wi
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is the formula for the Weighted Moving Average?

A

At = E(Wi)(Dt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What are the procedure for the Weighted Moving Average

A

Step 1: 𝛴WiDt = W1Dt+W2Dt-1+…+ WNDt-N+1

Step 2: A = Ft+1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What are the steps to finding Forecast (F) in Weighted Moving average utilizing the “three-period” forecast demand, N=3?

A
  • Find demand (should already be given).
  • Multiply the most recent demand by W1added by the second most recent multiplied by W2 + the further period by W3 and so on. Using Pemdas.
  • The Average (A) will be used for the forecast in the next period so if A3 = 130 then F4 = 130.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is Simple Exponential Smoothing used for?

A

Exponential smoothing uses the demands observed in all previous periods to generate the forecast
- ‘a’ places weights on previous time periods
- ‘a’ is usually given a value between 0 and 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What are the two formulas for Simple Exponential Smoothing?

A

At = EWiDt

wt-i = a(1-a)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What are the procedures for Simple Exponential Smoothing?

A

Step 1: At = aDt + (1-a)Ft
(current average = a Current Demand + (1-a) Current Forecast)

Step 2: At = Ft+1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

How to use the formula in steps for Simple Exponential Smoothing?

A

Recall Ft = At-1 (Current forecast comes from last average)
Ft = At−1= αDt−1+(1−α) Ft−1
Ft−1 = At−2 = αDt−2 + (1−α) Ft−2
Ft−2 = At−3 = αDt−3 + (1−α) Ft−3
Any Ft or At loops in all previous periods demands

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What are the steps to finding the Forecast (F) in the Simple Exponential Smoothing?

A

Using demand and forecast for the current period, multiply the alpha that’s given by the current period demand and add that to 1 minus the alpha multiplied by the current forecast to get the Average (A) for example 107. Then that current period average (A) (example 107) will be used for the forecast for the next period. So if A1 = 107, then F2 = 107.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What are the two true statements using intuition when considering Simple Exponential Smoothing?

A

1 - Exponential smoothing uses the demands observed in all previous periods to generate the forecast for the following periods.
2 - The weights associated with each previous periods appear to be exponentially decreasing.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is the weight formula for Simple Exponential Smoothing?

A

Wt-1 = a(1-a)^i
aE |0,1|

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What do time series methods rely on?

A

They rely on historical data to understand future pattern?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What is the highlight for the Naive Method?

A

Only the last period is important in predicting demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What is the highlight for the Simple Moving Average?

A
  • The last N periods are of equal importance
  • Managerial Decision: value of N
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What is the highlight for the Weighted Moving Average?

A
  • The last N periods are unequally important
  • Managerial Decision:
    a. Value of N
    b. Value of weights (W) for each past demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What are the highlights with the Simple Exponential Smoothing?

A
  • All periods are important but the relative importance declines smoothly over time in an exponential fashion.
  • Managerial Decision: value of a (smoothing constant)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What is true of the weight scheme in the Naive Method?

A

The most recent period has all the weights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Why concern forecast accuracy?

A

Every model is wrong, but which one is less wrong?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Why should firms estimate forecast accuracy?

A
  • To monitor erratic demand observations or “outliers”
  • To determine when the forecasting method is no longer tracking actual demand
  • To determine the parameter values that provide the forecast with the least error
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

What is the forecast error (e) formula? Give an example.

A

Forecast error equals demand minus forecast

et = Dt - Ft

e2 = D2 - F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

What are two true statements regarding forecast errors for each period?

A
  • It does not involve At (average) directly
  • Errors can be positive (under-forecasting) or negative (over-forecasting)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

What is the purpose for the Absolute Error Statistics?

A

Does not account for the relative magnitude of underlying demand values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What are the three forecast error methods under Absolute Error Statistics?

A
  • MFE (Mean Forecast Error)
  • MAD (Mean Absolute Deviation)
  • MSE (Mean Squared Error)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

What is the purpose for Relative Error Statistics?

A

Accounts for the relative magnitude of underlying demand values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

What forecast error method is under the Relative Error Statistics?

A

MAPE (Mean Absolute Percentage Error)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

What is the procedure for the Mean Forecast Error (MFE)?

A

Step 1: Calculate forecast error (e) for each period
Step 2: Calculate MFE by taking the average of the computed forecast errors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

What are the steps in determining the Mean Forecast Error (MFE)?

A
  • Find the forecast error (e) by subtracting demand (D) by forecast (F)
  • Find the average of e by adding (and subtracting) all the values of e (e2, e3, e4, etc.) and dividing it by the number of periods (n) that have an error (so if period 1 does not have an error do not include that in the total so if there are 6 periods and only 4 have errors then only divide the sum total of e by 4)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

What are the procedures for finding the Mean Absolute Deviation (MAD)?

A

Step 1: Calculate forecast error and absolute error for each period

Step 2: Calculate MAD by taking the average of the computed absolute errors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

What are the steps in determining the Mean Absolute Deviation (MAD)?

A
  • Find the forecast error (e) first
  • Find the absolute error for the forecast error by only taking the positive number of each value in error (so -25 would be just 25)
  • Add up all the absolute error and divide it by the total number being added
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

What is the procedure for finding Mean Squared Error (MSE)?

A

Step 1: Calculate squared error for each period

Step 2: Calculate the MSE by taking the average of the computed squared errors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

What are the steps in determining the Mean Squared Error (MSE)?

A
  • Find the forecast error (e)
  • Square the value for e (so 25 squared equals 652)
  • Sum the values of the squared error and divided it by the total number being added
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

What is the procedure for finding the Mean Absolute Percentage Error (MAPE)?

A

Step 1: Calculate absolute error percentage for each period

Step 2: Calculate MAPE by taking the average of the computed absolute error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

What are the steps in determining the Mean Absolute Error Percentage (MAPE)?

A
  • Find the forecast error (e)
  • Take the absolute value of the forecast error (e) and divide it by the demand to get the percentage
  • Add up all the percentages (without the percentage sign or else it’ll mess up the calculations)
  • Divide the sum by the total number being added to get the percentage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

What is the effect for weight when the alpha (a) is larger or smaller in the systemic change in the mean?

A

A smaller alpha = the most recent demand is lighter - is less responsive to recent changes
A larger alpha = the most recent demand is heavier - traces the trend faster

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

What is the effect of N in the Moving Average for the systemic change in the mean demand?

A

Smaller N traces the trend faster

Larger N is less responsive to recent changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

What parameter for a method is better in handling the systematic change in the mean demand?

A
  • Moving Average
  • Exponential Smoothing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Which parameter for a method is better in handling a random spike in demand?

A
  • Moving Average
  • Exponential Smoothing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

What effect does N have in the Moving Average with random spikes in demand?

A
  • Smaller N traces the random spike closely
  • Larger N has a smoother forecast
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

What happens with alpha (a) in exponential smoothing for random spikes in demand?

A
  • Larger a traces the random spikes closely
  • Smaller a has a smoother forecast
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

What are the two exponential smoothing methods?

A
  • (Simple) Exponential Smoothing
  • Double Exponential Smoothing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

What is the difference between Simple and Double exponential smoothing?

A
  • Simple: Does not account for the trend explicitly
  • Double: Accounts for the trend explicitly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

What is the atheoretical approach and the methods when it comes to time series models?

A
  • Assumptions: past data is best predictor for the future
  • Models:
    1. Naive Method
    2. Moving Average
    3. Weight Moving Average
    4. Exponential Smoothing
    5. Double Exponential Smoothing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

What is the theoretical approach when it comes to casual models?

A
  • Assumption: there is a relationship between variables
  • Models:
    1. Regression-based approach
77
Q

What is the regression method?

A

The regression method can be applied to examine “statistical” relationship between two (or more) variables

78
Q

What is the relationship between X and Y in the Regression Assumption?

A

Regression Assumption- variable we want to forecast is related to other variables in the business environment

79
Q

What are the formulas when finding the Regression Line?

A

𝑌̂ = a + bX
𝑌̂ = intercept (a) + slope (b) * X
a = Y̅ − bX̅
b = (∑XY − nX̅ Y̅ ) / (∑X^2−nX̅ ^2)

80
Q

What does the regression line do?

A

Minimizes the forecast errors (MSE) between:
- Actual (Y)
- Forecasted (Y^)

81
Q

What are the limitations of regression?

A
  • In many cases, we don’t know the driving factors
  • There is no theory supporting the selection of the driving factors (X)
  • Correlation does not imply causation
82
Q

What are the difficulties when correlating with a cause in the Regression Model?

A

Difficulty- Identify what’s the “real” treatment / intervention (X) that leads to changes in the outcome (Y)

83
Q

What are some forecasting insights? (3 of them)

A
  • Forecasting demand for families of product is more accurate than forecasting demand for individual product
  • Forecasting demand for a month is more accurate than forecasting demand for a week
  • The further into the future you want to forecast demand, the less accurate you are likely to be
84
Q

What is inventory?

A

A stock of materials used to facilitate production or satisfy customer demands

85
Q

What are the three factors with Inventory?

A
  • Supply Rate
  • Demand Rate
  • Inventory as a buffer
86
Q

Why do we have a buffer for household inventory?

A
  • Economic Purchase
  • Protect Against uncertainties
87
Q

What is the Economic Reason for firms building inventory?

A

To allow economic production and purchase

88
Q

When firms build inventory, why should they prepare for changes?

A
  • To cover anticipated change in demand (i.e. peak season) and supply problems (i.e. price change)
    a. Anticipation Inventory
  • To protect against uncertainties in demand, supply, lead times, schedule changes
    a. Build inventory safety stock
89
Q

Is inventory costly?

A

Yes

90
Q

What are the three types of inventory?

A
  1. Raw Materials
  2. Work in Process
  3. Finished Goods
91
Q

What is Dependent Demand and what type(s) of inventory does it involve?

A
  • Raw Materials
  • Work in Process

Demand depends on the demand of the finished goods

92
Q

What is Independent Demand and what type(s) of inventory are involved?

A
  • Finished Goods

Demand is independent of other items, depends on market demand

93
Q

What is Raw Materials?

A

The basic inputs to the manufacturing process

94
Q

What is Work in Process?

A

Inventories of goods that have been partially processed but not yet completed

95
Q

What are Finished Goods?

A

Completed units that are awaiting shipment to the customers.

96
Q

What are the four types of inventory costs?

A
  • Item Cost (or purchasing cost)
  • Ordering Cost
  • Holding / Carrying Cost
  • Stockout Cost
97
Q

What is Item Cost?

A

Cost of buying individual inventory items
- Item cost may be discounted if buying in bulk

98
Q

What is Ordering Cost?

A

A fixed cost of placing an order. It usually does not depend on the lot size. It includes costs associated with:
- Paperwork, electronic entry
- Worker time for ordering (or setting up the order)
- Transportation Costs

99
Q

What are Holding / Carrying Cost?

A

Cost of keeping items in inventory for a period of time
- Cost of storage (space, insurance, taxes)
- Cost of obsolescence, deterioration, and loss (shrinkage)

100
Q

What is Stockout cost?

A

Backorder costs
- Lost Sale
- Customer Dissatisfaction

101
Q

What is the goal for managerial decisions for Inventory?

A
  • Goal: How to fulfill the demand while minimizing the cost
102
Q

What are the two decisions when trying to minimize the cost while fulfilling demand?

A

Decision #1 - How much to order?
(What is an optimal order quantity?)
Decision #2 - When to order?

103
Q

What are the two type of quantity when deciding how much inventory to order?

A
  • Varied Quantity (to fill the inventory up to a target level)
  • Fixed Quantity
104
Q

What are the two types of review when considering when to order inventory?

A
  • Continuous Review
  • Periodic Review (with fixed interval)
105
Q

What are the two things associated with the EOQ model?

A
  • Fixed Quantity
  • Continuous Review
106
Q

What is included in the EOQ Basic scenario inventory dynamics?

A
  • Demand Rate (D) is constant
  • Order Quantity (Q) is fixed
  • Assume zero lead time (time between placing the order and receiving the order is zero)
107
Q

What decision is considered with inventory dynamics in the EOQ basic scenario?

A

What’s an optimal order quantity?

108
Q

What are the four key EOQ assumptions?

A
  • No Stockouts (all demand is met)
  • Constant Unit Price (C) (no discounts given for large orders)
  • Demand Rate (D) is known and constant (demand can be forecasted perfectly and demand is the same in every period)
  • Lead time (L) is known and constant (time between placing the order and receiving the order is always the same and not necessarily zero)
109
Q

What are the EOQ Model formulas?

A

Annual Cost (TC) = Annual Ordering Cost (# of orders per year) + Annual Holding Cost (average inventory units)

TC = (D/Q)Co + (Q/2)Ch
or
Q = √ 2DCo / Ch

110
Q

What are the notations for the EOQ Model?

A

TC = Total Annual Cost ($)
D = Annual Demand (Units / Year)
Q = Order Quantity (Units)
Co (or S) = Cost of placing (or setting up) an order ($)
Ch = Annual Holding Cost per unit ($ / unit / year)

111
Q

What happens to the annual ordering cost and annual holding cost when order size increases?

A

When order size (Q) increases:
- Annual ordering cost decreases - because of less frequent order placing

  • Annual holding cost increases - because of higher inventory level
112
Q

What are the steps and derivation when finding EOQ?

A

Step 1 - Set up the equation for the total cost (TC) as a function of Q ~~ TC=(D/Q) Co + (Q/2) Ch

Step 2 - Take the first derivative with respect to Q
~~ δTC / δQ = - (D/Q^2)Co + (1/2)Ch

Step 3 - Set the derivative equal to zero
~~ (0 = - (D / (Q^2)Co + (1/2)Ch

Step 4 - Solve for Q
Q = √ 2DCo / Ch

113
Q

Which parameters are most common in EOQ equations?

A

Demand (D)
Order Cost (Co)
Holding Cost (Ch)
Holding Cost Rate (i)
Unit Cost (C)

114
Q

What is the formula for holding cost?

A

Ch = Holding Cost Rate (i) * Unit Cost (C)

115
Q

Formula for finding EOQ?

A

Q = √ 2DCo / Ch

116
Q

What is the formula for total annual cost?

A

TC = (D/Q)Co + (Q/2)Ch

117
Q

What is the formula for the Annual Ordering Cost?

A

AOC = (D/Q)*Co

118
Q

What is the formula for finding Annual Holding Cost?

A

AHC = (Q/2) * Ch

119
Q

How to calculate for the number of orders per year?

A

of orders per year = D/Q

120
Q

What is the formula for the Order Cycle (time between orders)?

A

Order Cycle = Q/D

121
Q

What are some tips for EOQ breakdown?

A
  • Calculate EOQ first
  • Have Consistent Unit measures
122
Q

For non-zero lead time utilizing the EOQ model, what decision is discussed?

A

When to Order?

123
Q

What is the formula for the Reorder Point?

A

Reorder Point (R) = D (demand) * Lead Time (L)

124
Q

What happens when inventory drops to R (reorder point)?

A

An order needs to be placed

125
Q

Example: A firm’s annual demand is 10,000 units, and lead time is 10 days. Assuming the firm operates 250 days in a year, what’s the firm’s inventory reorder point (R)?

A

400 units

R = D*L = (10,000 / 250 days) * 10 = 400

126
Q

What is the EOQ System in simple terms?

A
  • Firms monitor their inventory level continuously
  • When their inventory level drops to R, they must place an order Q
  • The quantity to order is the same very time, which is equal to EOQ
127
Q

What happens in the EOQ system when the demand is random?

A

When demand is random, firms could run out of stock before the shipment arrives
(uncertainty arises during the replenishment lead time (L) period)

128
Q

What happens to the service level when the demand is random in the EOQ system?

A
  • The probability of not stocking out when a customer arrives,
    (i.e., the probability of fulfilling the total demand during the lead time using on-hand inventory)
  • A higher service level means that customers are less likely to encounter a stock out
129
Q

What are the different name for the Q system?

A
  • Continuous Review System
  • Fixed-Order-Quantity System
130
Q

What is Q in the Continuous Review System?

A

FIxed Order Size Q is EOQ

131
Q

What is the Q System for?

A

Continuously check inventory position when there is demand

132
Q

What happens when inventory positions drops to R (reorder point) in the Q system?

A

Have to place an order with a fixed quantity (Q)

133
Q

What are the notations in the Q System?

A

Q = Order Quantity
L = Lead Time
R = Reorder

134
Q

What can stockout happen in the Q System?

A

Stockout may happen during lead time (L) period

135
Q

What is Demand Distribution?

A

Probability Distribution of demand rate

136
Q

What are the notations in the Demand Distribution?

A

M = Mean of demand rate
σ = standard deviation of demand rate
s = safety stock
R = reorder point

137
Q

What should you do after you decide on the service level in the demand distribution?

A

Stockout Probability = 1 - service level probability

138
Q

How to find the reorder point in the Demand Distribution?

A

Reorder Point = Mean Demand + Safety Stock (informed by service level probability)

139
Q

What is between the Mean and the Reorder Point on the Demand Distribution graph?

A
  • The service level probability
  • Safety Stock
140
Q

What is beyond the range of the reorder point on the Demand Distribution graph?

A

The stockout probability

141
Q

What are the general steps to obtain the reorder point? In the Q system

A
  • Have a desired service level (p)
  • Find the safety factor (z)
  • Calculate safety stock (s) = z + σ
  • Compute reorder point (R) = s + m
142
Q

What does Z indicate on the probability chart?

A

Z indicates how many deviations away R is from the mean value

143
Q

What is a true statement on how service level informs safety stock?

A

As service level (p) increases, safety factor (z) increase and as safety factor increase then safety stock (s) increases

  • Higher service level, higher safety stock inventory level
144
Q

What is the main difference between the EOQ Model and the Q system?

A

EOQ
- Demand (D) is a constant
- Formula: R = DL

Q System
- Demand follows a normal distribution with mean μ and standard deviation σ, which is usually given in the format of historical demand distribution
- Demand over the lead time (L) period follows a normal distribution, with mean μL and standard deviation σ√L
- Formula: R = m + s = μL + zp*σ√L
zp: safety factor (z) with a service level (p)

145
Q

What is the summary of the meaning for the formula to find the reorder point in the Q system?

A

R = μL + zpσ√L
- μL = mean demand during the lead time
- zpσ√L = safety stock to protect against the variation in demand during the lead time

146
Q

What are other names for a P system?

A
  • Periodic Review System (main name)
  • Order-Upto System
  • Fixed-Order-Interval System
147
Q

What are the steps in the P system?

A
  • Review Inventory
  • Place Order
  • Receive Order
148
Q

Which steps in the P system follow a Fixed Review Cycle?

A
  • Review Inventory
  • Place Order
149
Q

Which steps in the P system follow the Fixed Delivery Cycle?

A
  • Receive Order
150
Q

What happens in the Review Inventory step in the P System?

A

Fixed-order-interval system
- Companies review their inventory level at fixed periods
- The time between two inventory reviews is review period (P)

151
Q

What happens in the Place Order step in the P System?

A

It follows an order-upto policy
- Order Size (Q) = Target Inventory Level (T) - “on-hand” inventory
- The company will place an order for the difference
- Order Quantity varies

152
Q

What happens in the Receive Order step in the P System?

A

There is a lead-time (L) to receive the shipments

153
Q

What can happen with stockout in the P system?

A

Stockout may happen during review and lead time period (P+L)

154
Q

What is the Review Cycle equivalent to in the P System?

A

Review Cycle = Delivery Cycle (since the lead time L is fixed)

155
Q

What are the notations in the P System?

A

T = Target Level
Q = Order Quantities
L = Lead Time
P = Time between orders

156
Q

What are the three factors in the P System?

A
  • Demand Distribution
  • Safety Stock (s)
  • Target Inventory (T)
157
Q

What is the Safety Stock in the P System?

A

s = zσ
- Safety Factor (z) is associated with a pre-determined service level (p)
- σ = the standard deviation of demand over “P+L” period

158
Q

What is the Target Inventory in the P System?

A

T = m + s
- m = average demand over “P+L” period
- s = safety stock to cover “P+L” period

159
Q

What are the general steps to obtain the target inventory (T) in the P System?

A
  • Have a desired service level (p)
  • Find the safety factor (z)
  • Calculate the safety stock (s) = z + σ
  • Compute reorder point (R) = s + m
160
Q

What happens in the Q System with distribution?

A

Distribution of Demand over lead time (L)

161
Q

What happens in the P system with distribution?

A

Distribution of demand over review and lead time (P+L) period

162
Q

What happens in the Target Inventory (T) in the P System?

A
  • Demand follows a normal distribution with mean μ and standard deviation σ
  • Demand over the “P+L” period follows a normal distribution with mean (P + L) μ and standard deviation σ √ P + L

Target Inventory (T) = (P+L) μ + zp* σ √ P+L

163
Q

What happens with Review Period (P) in the P system and the difference between the EOQ Model?

A
  • EOQ model’s Order Cycle = Q/D
  • Review Period P = Optimal Q / Demand = EOQ / D = 1/D*√2DCo/Ch = √2Co / DCh
164
Q

What is the summary of the formula for target inventory in the P System?

A

(T) = (P+L) μ + zp* σ √ P+L

  • (P+L) μ = Average demand during the (P+L) periods
  • zp* σ √ P+L = Safety stock to protect against the variations in demand during the (P+L) periods
165
Q

What is the formula to find Period (P) in the P System?

A

P = EOQ / D = √ 2Co / DCh

166
Q

What is the difference regarding safety stock between the P and Q system?

A

P System
- requires a larger safety stock (carrying more inventory
(works better when items are inexpensive)

Q System
- requires fewer safety stock
(works better when items are expensive)

167
Q

What is the difference between placing orders in the Q and P system?

A

P System
- When orders must be placed at specified intervals
(Periodic Delivery leads to periodic review)
(P system requires more planning)

Q System
- When the cost of continuously monitoring the system inventory is low
(Q system requires more unplanned trips)

168
Q

What is the difference in ordering between the Q and P system?

A

P System
- When multiple items are order from the same supplier
(Joint-replacement)

Q System
- When ordering fixed lot sizes (e.g. EOQ or full truck load) is more economical

169
Q

When deciding how much inventory to order, which system(s) are the best for a fixed amount?

A
  • EOQ Model
  • Q System
170
Q

When deciding how much inventory to order, which system(s) are the best for a varied amount?

A
  • P System
171
Q

When deciding when to order inventory, which system(s) are the best for a fixed period?

A
  • EOQ Model
  • P System
172
Q

When deciding when to order inventory, which system(s) are the best for a varied period?

A
  • Q System
173
Q

What is a Project?

A

A temporary endeavor undertaken to create a unique product/service

174
Q

What are the three project objectives?

A
  • Budget (cost)
  • Schedule (delivery)
  • Performance (quality)
175
Q

What are the project trade-offs?

A
  • Budget vs. Schedule: Running a project with a tight budget may prolong the project
  • Schedule vs. Performance: It may take longer time to complete a “quality” project
  • Budget vs. Performance: it may cost more to delivery a “quality” project
176
Q

What are the four phases in project management?

A
  1. Project Planning
  2. Project Scheduling
  3. Project Control
  4. Project Closing
177
Q

What is the process for Phase 1 of Project Management

A
  1. Planning Phase (Project Planning)
    - Identify the project customers
    - Set project objectives
    - Estimate total resources
    - Appoint key personnel
178
Q

What is the process for Phase 2 of Project Management?

A
  1. Scheduling Phase (Project Scheduling)
    - Develop a detailed Work-Breakdown Structure (WBS)
    - Sequence the tasks using Gantt Charts
    - Assign people to tasks
179
Q

What is the process for Phase 3 of Project Management?

A
  1. Control Phase (Project Control)
    - Monitor Activities
    - Compare planned activities to actual progress
180
Q

What is the process for Phase 4 of Project Management?

A
  1. Closing Phase (Project Closing)
    - Finish all work
    - Report the project
    - Turn over project to owners
181
Q

What are the tools used in the Project Scheduling phase?

A

Tool 1: Work-Breakdown Structure (WBS)
Tool 2: Gantt Chart

182
Q

What is the Work-Breakdown Structure (WBS) for?

A
  • A hierarchical listing of all the tasks needed to complete a project
  • Break down tasks in more detailed steps
183
Q

What is the Gantt Chart for?

A
  • Assign start and end dates for each tasks
  • Sequence the tasks
  • Visual and easy to understand
184
Q

In the Scheduling Phase, why would you use a Gantt Chart?

A
  • Gantt Charts capture the time schedule for each task in the WBS
    (assign a start date and an end date for each task)
    (indicate the duration for each task on the chart)
  • A Gantt Chart can be created for activities at all levels
185
Q

What happens in Phase 3 (Project Control)?

A

Phase 3: Control Activities and decisions
- Monitor actual project schedule, cost, and performance
- Compare planned activities (in Gantt Chart) to actual project progress
- Determine whether any corrective actions are needed
- Take appropriate corrective actions

186
Q

What happens in Phase 4 (Closing Phase)?

A

Phase 4: Closing Activities
- Finish all work
- Close contracts
- Turn the project over to product/service owners

187
Q

What is Lean?

A
  • Focus on creating value for customers
  • Eliminate waste
188
Q

What are the four levels for Lean?

A
  • Philosophy
  • Principles
  • Practices
  • Tools

SCM 352-1004 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions