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ECO Formulas

GREY-OUT AREAS MORE APPLICABLE TO PREVIOUS MODULES

A

Annual ordering cost calculation = (annual projected usage/lot size) * cost per order

Annual carrying cost calculation = (lot size/2) * unit cost * carrying rate (% of unit cost)

Available to Promise (ATP) for period 1: on hand – customer order due before next MPS

Available to Promise (ATP) for period 2: MPS scheduled receipt – customer orders due before next MPS

Average inventory = order quantity/2 + safety stock = (starting inventory + ending inventory)/2

Average inventory in transit = (transit time in days) * (annual demand)/365

B

Backlog = total forecast + opening backlog – ending backlog or

Backlog = previous backlog + input – output

Bias = sum of deviations (actuals – forecast)/number of observations

C

Carrying cost = capital (not product cost) + storage + risk costs

Capacity available = shifts per day * hours per day * days per period * productivity factor

Capacity demonstrated = historical output * standard hours to produce

Capacity required = Setup time + Run time (no. of units * hours per unit)/ required quantity * standard hours to produce the product

Capability ratio Cp = Specification range/Process capability = (USL – LSL)/6σ where

USL = upper specification limit or upper tolerance and LSL = lower specification limit or lower tolerance

Capability index 

Cost of distribution (total) = transportation costs + warehousing costs + materials handling costs + packaging costs + costs of carrying inventory

Critical ratio = actual time remaining / lead time remaining = (Due Date – Today’s Date)/(Manufacturing Lead Time Left)

D

Days of supply = inventory on hand / average daily usage

Deseasonalized demand = actual seasonal demand/seasonal index

E

Economic Order Quantity ; Where

A Annual Usage in units; S Ordering cost in $; i Annual inventory carrying cost as decimal; C unit cost

Exponential smoothing = α * latest demand + (1 – α) * previous forecast; α is smoothing constant

Efficiency = standard hours of work/hours actually worked * 100%

F

G

Gross margin = revenue – cost of goods sold

Gross profit = revenue – cost of products sold

H

I

Inventory turns = annual cost of goods sold/average inventory in dollars

J

K

L

M

Mean Absolute Deviation MAD – sum of absolute deviations (actuals – forecast)/number of observations

Manufacturing Lead Time = Queue time + Setup time + Run time + Wait time + Move time

N

Net income = gross margin – general and administrative expenses

Net requirements = gross requirements – scheduled receipts – available inventory

No. of kanbans for RM and FG including SS = (safety stock + demand * lead time)/container capacity

No. of kanbans for WIP = (demand * lead time * safety factor)/container capacity; where stable safety factor 1 to 1.1; variable safety factor 1.2 to 1.4

O

Ordering cost = order receipt clerical cost + order preparation cost + set-up cost

Order point = demand during lead time + safety stock

Order quantity = target inventory – on hand quantity

Order time = setup time + run time

Owner’s equity= assets – liabilities

P

Period-order quantity = EOQ/average weekly usage

Projected Available Balance (PAB) before demand time fence = prior period PAB or on-hand balance + MPS – customer orders

Projected Available Balance (PAB) after demand time fence = prior period PAB + MPS – greater of customer orders or forecast

Process Capability index Cp = (Upper limit – lower limit)/6 sigma

when Cp > 1 process is capable; if Cp < 1 process is not capable; when Cp > 2 then we have a Six Sigma process (3,4 defects per million pieces)

Productivity factor = utilization * efficiency

Projected Available Balance (PAB)in first period = Current on-hand inventory + MPS Receipts – Safety Stock – Orders

Projected Available Balance (PAB)after first period before time fence = Prior period PAB + MPS receipts – Customer Orders

Projected Available Balance (PAB)after first period after demand fence = Prior period PAB + MPS receipts – Greater of Forecast/Customer Orders

Purchasing lead time = order preparation + quoting + supplier lead time + transportation time + stocking time (inspection if necessary)

Q

R

Rated capacity = available hours * efficiency * utilization

S

Safety Stock SSin Distribution Network (recalculation) ; where X is centralized safety stock and N is number of distribution centers (used when increasing number of centers)

Seasonal index = period average demand/average demand for all periods (deseasonalized demand)

Shrinkage factor = 100% – (Yield factor/Yield factor)

Standard Deviation Sigma ; n number of observations = 1,25 * MAD

T

Target inventory = delivery lead time demand + periodic review duration demand + safety stock

Total cost for order lot size = carrying cost + order cost

Tracking signal = sum of forecasting errors/Mean Absolute Deviation

U

Utilization = hours actually worked/available hours * 100% = actual output/design capacity (max output attainable)

V

W

X

Y

Z

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