D464 Formula Sheet

Chapter 1

Value = Perceived benefits

Price (cost) to the customer

Chapter 2
Productivity = Quantity of Output
Quantity of Input

Value of Loyal Customer

VLC = P x CM X RF X BLC
P = the revenue per unit
CM = contribution margin to
RF = repurchase frequency = number of purchases per year
BLC = buyers’ life cycle computed as 1/defection rate,
expressed as a fraction (1/0.2 = 5
years, 1/0.1 = years, etc.)

Chapter 4
Total Costs (TC) = Fixed Costs (FC) + (Unit Costs (c) x Quantity (Q))
Cost Difference = Total Cost Vendor A (TCA) – Total Costs Vendor B (TCB)
Chapter 19
Activity on Node:
Early Finish (EF) = Early Start (ES) – T (time to perform activity)
Last Start (LS) = Last Finish (LF) – T (time to perform activity)

Crash Cost
Crash Cost per unit of time = Crash Cost – Normal Cost
Normal time – Crash time

PERT
Expected Time = (a + 4m + b)/6
Variance = (b – a)2 / 36

Chapter 5:
Taguchi Loss Function
The loss function is: L(x) = k(x – T) 2
Where:
L(x) is the monetary value of the loss associated with deviating from
the target, T;
x is the actual value of the dimension; and
k is a constant that translates the deviation into dollars
Chapter 6:
Breakeven Analysis for Outsourcing

Q* = FCO – FCI
CI – CO

Where:

FCO – fixed cost of outsourcing

FCI – fixed cost of in-house manufacturing
CI – the unit cost of manufacturing in-house
CO – the unit cos of outsourcing

Center of Gravity Location Decision

Cx = ∑iWi/∑Wi
Cy = ∑YiWi/∑Wi

Where:
Cx = X coordinate of the center of gravity
Cy = y coordinate of the center of gravity
Xi = x coordinate of location i
Yi = y coordinate of location i
Wi = volume of goods or services moved to or from location i
Chapter 8:
Cycle Time:
CT = A / R
Where: A = the available time to produce the output
R = demand forecast

Chapter 9:
Forecast error is the difference between the observed value of the time
series and the forecast, or
Forecast error = At - Ft
At represents the value of the time series for period t. We will let Ft
represent the forecast value for period t.

Three types of errors:

Mean Square Error (MSE) - is calculated by squaring the individual
forecast errors and then averaging the results over all T periods of
data in the time series.
MSE = ∑ (At - Ft)2
T

Mean absolute deviation (MAD) - is simply the average of the sum of

the absolute deviations for all the forecast errors.
MAD = ∑ │At - Ft│
T
 Mean absolute percentage error (MAPE) - is simply the average of
the percentage error for each forecast value in the time series.
MAPE = ∑│(At – Ft) / At │ x 100
T

Moving Average (MA) forecast is an average of the most recent “k”

observations in a time series..
F t + 1 = ∑( At + A t – 1 + A t – 2 … + A t – k + 1) / k

Single exponential smoothing (SES)

F t + 1 = αAt + (1 – α)Ft

Regression analysis is a method for building a statistical model that defines

a relationship between a single dependent variable and one or more
independent variables, all of which are numerical.
Yt = a + b t
Where
Yt represents the value of the dependent variable
t represents the time
a represent the intercept of the straight line that best fits the
time series
b represents the slope of the straight line that best fits the time
series
Mathematically, the learning curve is represented by the function
Y = αx-b

Where:
X = number of units produced
α = hours required to produce the first unit
Y = time to produce the xth unit
-b = constant that defines a 100p percent learning curve (i.e. if p =
0.8, then we have an 80% leaning curve)

Aggregate Production Planning

It – 1 + Pt -Dt = It

Where :
It – 1 = ending inventory in period t - 1
Pt = production in time period t
Dt = demand in time period t
It = inventory at the end of period t
Projected On Hand Inventory
POHt = OHt – 1 + S/PRt - GRt

Where:
POHt = Projected on-hand in period t
OHt – 1 = On hand inventory in period t - 1
S/PRt = Scheduled or planned receipts in period t
GRt = Gross requirements in period t

Capacity Requirements:
Capacity required (Ct) = Setup time (Si) + Processing time (Pi) x
Order size (Qi)

Chapter 15
Flow time is computed
Fi = S i + P i

Where
Fi = flow time of job i
Si = start time of job i
Pi = processing time of job i
Chapter 11
Two ways of computing resource utilization are:
Utilization (U) = Resources Used / Resources Available
Utilization (U) = Demand Rate / (service rate x number of
servers)

Total Cost of Waiting For Service

TCW = CSk + CWL

Where:
CW = waiting cost per hour per customer
K = number of servers
CS = the hourly cost associated with each server
L = the average number of customers in the system (queue and
in service)

Chapter 12

Average Cycle inventory = Maximum + minimum inventory / 2

= (Q + 0) / 2
=Q/2

Inventory Holding Costs

Ch =IXC
Where:
 Ch = Cost of storing 1 unity of inventory for the year
I = Annual inventory – holding costs expressed as a percentage
of unit costs
C – Unit costs of the inventory item

Identifying Order Quantity

Q* = 2 DCo
Ch

Where:
Q* = Economic Order Quantity
D = annual demand of the product
Ch = costs of holding one unit of inventory for the year
Co = costs of placing one order

Reorder Point
r = demand rate x lead time

Quantity Discount Model

TC = Q (Ch) + D(Co) + DC
2 Q
 Where:
TC = total annual costs
D = annual demand of the product
Q = number of items per order
Ch = costs of holding one unit of inventory for the year
Co = costs of placing one order
C = unit costs

Chapter 13:
Inventory Turnover:
Inventory Turnover (IT) = Sales / Average Inventory
Inventory Turnover (IT) = Cost of goods sold / Average inventory value

Total Supply Chain Costs (TSCC)

TSCC = D x (P + O + Ct) + Co x (D/Q) + (Q/2) x Ch + d x L x Ch
Where:
P = unit price of procurement
O = management oversite costs per unit
Ct = costs per unit for transportation including import and export
tariffs and fees
D = annual demand forecasts (units)
Q = order quantity (units)
Co = order costs per order
Ch = annual inventory holding costs per unit
L = lead time (days)
d = average daily demand (units/day)
Cash to Cash Conversion Cycle
ARDS = Accounts Receivable Value / Revenue per day
APDS = Accounts Payable Value / Revenue per day
Revenue per day = Total revenue / operating days per year

Finally:
Cash to Cash Conversion Cycle = IDS + ARDS – APDS

Process capability index - the relationship between the natural variation

and specifications. In numerical terms, the formula is

Cp = USL – LSL
6σ

Where:

USL = Upper specifications limit

LSL = Lower specifications limit
σ = standard deviation of the process (or estimate)

Cp values less than 1 mean that a significant percentage of output

(observed variation) will not conform to the design specifications. Cp
exceeding 1 indicate good capability

Chapter 16:
Six Sigma Measures output quality by defects:
Defects per unit (DPU) = Number of defects discovered / Number of
units produced
 Defects per
million opportunities = Number of defects discovered x 1,000,000
Opportunities for error

Chapter 17:
Process capability index is the relationship between the natural variation
and specifications. The formula is:

Cp = USL – LSL
6σ

Where:

USL = Upper specifications limit

LSL = Lower specifications limit
σ = standard deviation of the process (or estimate)

Cp values less than 1 mean that a significant percentage of output

(observed variation) will not conform to the design specifications. Cp
exceeding 1 indicate good capability.

Chapter 18:

Calculate the number of Kanban cards (K) required

JIT practice is to set the lot size or container size equal to about 5 to
20 percent of a day’s demand. The following equation is used to
calculate the number of Kanban cards (K) required:

K = Average daily demand during lead time plus safety stock

Number of units per container
 = d(p + w)(1 + α)
C

Where:

K = the number of Kanban cards in the system

d = the average daily production rate as determined from the

master production schedule

w = the waiting time of kanban cards in decimal fractions of the

day

p = the processing time per part, in decimal fractions of the day

C = the capacity of a standard container in the proper units of

measure

α = a policy variable as determined by the efficiency of the

process and its work stations and the uncertainty of the
workplace and therefore a form of safety stock.