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    Inventory control

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    Fundamental inventory control

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    Inventory control

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF or read online from Scribd
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    6 views13 pages

    Fundamental Inventory Control

    Uploaded by

    TIP 2015
    Inventory control

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF or read online from Scribd
    Flag for inappropriate content
    of 13
    CXERRESES Fundamentals of Decision Theory Leaning oBEcTiVes —_cuaPTER OUTLINE Eocene ted 24 ioe tein wine 22 te Si eps in Orcs Teo 1. List the steps of the decision- 2.3: Types of Decision-Making Gare ioe "2 bescrbe the types of decision- 2.4 Decision Making under Risk Ree meenmer mre Liepuyrolee 28 Morghalinee wi sla Seer aaiuistaiaue ao Nath otate oe Ss Ais in ne enor a he de dchoe waren: ihre Dew ceive ay ee Tmviee hee De Stay « liars yeeros fh ee oe probability values ae not Equations + Solved Problems © tals and forms a sold mass. For the dling of oe Sites = ck mason once » Ses nee gaa aga i ee ee Soar Bassas Gercaoe | hescuamaia alone Sateghgutapowiens *— Seeaata scars Bibliography ‘ce, Using decision theory, they opted for the gpa 1 Dude Tar ois” leet east ae weal Sets er necaie gun an whe ome Meenas Das fenjok”) Wmeavertonmom cartier eae 4 Chapter 2 Decision theory isan ana- Inte and systematie way to (ackle problem: A good decision is based on ogi ‘The fis step isto define the problem. The second step i to list aernatives FUNDAMENTALS OF DECISION THEORY QP] INTRODUCTION ‘To a great extent, the successes oF fallures that a person experiences in life depend on the decisions that he or she makes. The person who managed the ill-fated space shutle Challenger is no longer working for NASA. The person who designed the top-selling ‘became president of Ford, Why and how did these people make their respective In general, what is involved in making good decisions? One decision may make the difference between a successful career and an unsuccessful one. Decision theory isan ‘analytic and systematic approach to the study of decision making. In this anil the next chapter, we present the mathematical models useful in helping managers make the best possible decisions. ‘What makes the difference between good and bad decisions? A good decision is ‘one that is based on logic, considers all available data and possible alternatives, and applies the quantitative approach we are about to describe. Occasionally, good de- sion results in an unexpected or unfavorable outcome. But if itis made propery, itis still a good decision. A bad decision is one that is not based on logic, does not use all available information, does not consider all alternatives, and doesnot emplay appro- priate quantitative techniques. If you make a bad decision but ae lucky and a favorable ‘outcome occurs, you have still made a bad decision, Although occasionally good desi sions yield bad results in the long run, using decision theory will result in successful C22) ‘THE SIX STEPS IN DECISION THEORY Whether you are deciding about getting a haircut today, building multimillion dots plant, or buying a new camera, the steps in making a good decision are basically the same. These six stops arc Six Steps of Decision Making 41. Clearly define the problem at hand. LUst the possible altematives. Identify the possible outcomes. List the payoff or profit of each combination of atematives and outcomes. Select one ofthe mathematical decision theory models. ‘Apply the model and make your decision We use the Thompson Lumber Company case as an example to illustrate these de sion theory steps. John Thompson is the founder and president of Thompson Lumber Company, a profitable firm located in Portland, Oregon. Step 1. ‘The problem that John Thompson identifies is whether to expand his product line by manufacturing and marketing a new product, backyard storage sheds ‘Step 2, Thompson's second step is to generate the allenatives that are available to him, In decision theory, an alternative is defined as a course of action or a strategy that may be ‘chosen by the decision maker. John decides that his alternatives are 1 construc: (1) a large new plant to manufacture the storage sheds, (2) a small plant, or (3) no plant at all (that is, he has the option of not developing the new product line). One ofthe biggest mistakes that decision makers make isto leave out some important tives. Although a particular alternative may seem to be inappropriate ot of litle value, tur out t0 be the best choice. ‘Slep 3. The third step involves identifying the possible outcomes of the various altema- tives. The criteria for action are established a this ime. Thompson determines that there ar only to possible outcomes: the market forthe storage sheds could be favorable, mean “ing that there is high demand for the product, or it could be unfavorable, meaning that theres low demand forthe sheds ‘A common mistake is to forget about some of the possible outcomes. Optimistic deci- sion makers tend to ignore bad outcomes, while pessimistic managers may discount & Iiyorable outcome. I you don’t consider all possibilities, you will ot he making a logical ‘ecision and the results may be undesirable, I you do not think the Worst ean happen, you nay design another Fuse automobile. In decision theory, those outcomes over which the

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