SECTION E

DEMAND MANAGEMENT

BREAK EVEN POINT

𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇

𝑃𝑃𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 × 𝐵𝐵𝐵𝐵𝑃𝑃 = (𝐵𝐵𝐵𝐵𝑃𝑃 × 𝑉𝑉𝑇𝑇𝑟𝑟𝑟𝑟𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇) + 𝐹𝐹𝑟𝑟𝐹𝐹𝑟𝑟𝐹𝐹 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇

𝐹𝐹𝑟𝑟𝐹𝐹𝑟𝑟𝐹𝐹 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇
𝐵𝐵𝐵𝐵𝑃𝑃 =
𝑃𝑃𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 − 𝑉𝑉𝑇𝑇𝑟𝑟𝑟𝑟𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇

DESEASONALIZATION

PERIOD AVERAGE DEMAND

𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑇𝑇𝑟𝑟𝑙𝑙𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹𝑐𝑐 𝑟𝑟𝑟𝑟 𝑇𝑇ℎ𝑟𝑟 𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐
𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 =
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐

AVERAGE DEMAND FOR ALL PERIOD

𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝑜𝑜𝑇𝑇𝑟𝑟 𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 =
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹

SEASONAL INDEX (SI)

𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹
𝑆𝑆𝑟𝑟𝑇𝑇𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇 𝐼𝐼𝑟𝑟𝐹𝐹𝑟𝑟𝐹𝐹 (𝑆𝑆𝐼𝐼) =
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝑜𝑜𝑇𝑇𝑟𝑟 𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹

DESEASONALIZED DEMAND
𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹
𝐷𝐷𝑟𝑟𝑐𝑐𝑟𝑟𝑇𝑇𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐷𝐷𝑟𝑟𝐹𝐹 𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 (𝐷𝐷𝐷𝐷) =
𝑆𝑆𝐼𝐼

DESEASONALIZED PERIOD FORECAST

See forecasting technique

FORECASTED DEMAND WITH SI

𝐹𝐹𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇𝑟𝑟𝐹𝐹 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 = 𝑆𝑆𝐼𝐼 × 𝐷𝐷𝑟𝑟𝑐𝑐𝑟𝑟𝑇𝑇𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐷𝐷𝑟𝑟𝐹𝐹 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇

FORECASTING TECHNIQUE

MOVING AVERAGE
𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝑜𝑜𝑇𝑇𝑟𝑟 𝑑𝑑𝑇𝑇𝑐𝑐𝑇𝑇 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑇𝑇 𝑐𝑐𝑟𝑟𝑇𝑇 𝑇𝑇𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹𝑐𝑐
𝑆𝑆𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 =
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹𝑐𝑐

EXPONENTIAL SMOOTHING
𝑁𝑁𝑟𝑟𝑁𝑁 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 = (𝛼𝛼 × 𝐿𝐿𝑇𝑇𝑇𝑇𝑟𝑟𝑐𝑐𝑇𝑇 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹) + ((1 − 𝛼𝛼) × 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟𝑐𝑐 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇)

𝛼𝛼 = 𝑐𝑐𝑑𝑑𝑇𝑇𝑇𝑇𝑇𝑇ℎ𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑟𝑟𝑐𝑐𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇
MEAN ABSOLUTE DEVIATION
∑ |𝐴𝐴𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇 − 𝐹𝐹𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇|
𝑆𝑆𝑟𝑟𝑇𝑇𝑟𝑟 𝐴𝐴𝑉𝑉𝑐𝑐𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝐷𝐷𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 =
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹𝑐𝑐

TRACKING SIGNAL
𝐴𝐴𝑇𝑇𝑎𝑎𝑟𝑟𝑉𝑉𝑟𝑟𝑇𝑇𝑟𝑟𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑐𝑐
𝑇𝑇𝑟𝑟𝑇𝑇𝑐𝑐𝑙𝑙𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑟𝑟𝑎𝑎𝑟𝑟𝑇𝑇𝑇𝑇 =
𝑆𝑆𝐴𝐴𝐷𝐷

SECTION F
MASTER PLANNING

PRODUCTION PLAN WITH LEVEL STRATEGY

𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑃𝑃𝑟𝑟𝑇𝑇𝐹𝐹𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 + 𝐵𝐵𝑇𝑇𝑐𝑐𝑙𝑙𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 + 𝐵𝐵𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑎𝑎 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 − 𝑂𝑂𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼

PROJECTED AVAILABLE BALANCE (PAB)

𝐵𝐵𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑎𝑎 𝑃𝑃𝑟𝑟𝑇𝑇𝑃𝑃𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝐹𝐹 𝐴𝐴𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝐵𝐵𝑇𝑇𝑇𝑇𝑇𝑇𝑟𝑟𝑐𝑐𝑟𝑟 (𝑃𝑃𝐴𝐴𝐵𝐵) = 𝐵𝐵𝑟𝑟𝑎𝑎𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑃𝑃𝐴𝐴𝐵𝐵 + 𝑆𝑆𝑐𝑐ℎ𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟𝐹𝐹 𝑆𝑆𝑃𝑃𝑆𝑆 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇 − 𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹

AVAILABLE TO PROMISE

CALCULATE ATP FOR FIRST PERIOD

𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝐴𝐴𝑇𝑇𝑃𝑃
= 𝐵𝐵𝑟𝑟𝑎𝑎𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼
− 𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑐𝑐𝑟𝑟𝑐𝑐𝑇𝑇𝑇𝑇𝑑𝑑𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 𝑉𝑉𝑟𝑟𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑜𝑜𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇 𝑐𝑐𝑐𝑐ℎ𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟𝐹𝐹 𝑆𝑆𝑃𝑃𝑆𝑆 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇

CALCULATE ATP FOR PERIOD CONTAINING MPS

𝐴𝐴𝑇𝑇𝑃𝑃 = 𝑆𝑆𝑐𝑐𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟𝐹𝐹 𝑆𝑆𝑃𝑃𝑆𝑆 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇
− 𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑐𝑐𝑟𝑟𝑐𝑐𝑇𝑇𝑇𝑇𝑑𝑑𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 𝑉𝑉𝑟𝑟𝑜𝑜𝑇𝑇𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝐹𝐹𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑐𝑐ℎ𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟𝐹𝐹 𝑆𝑆𝑃𝑃𝑆𝑆 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇

SECTION G
MATERIAL REQUIREMENTS PLANNING

GROSS TO NET REQUIREMENTS

NET REQUIREMENTS
𝑁𝑁𝑟𝑟𝑇𝑇 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑑𝑑𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐 = 𝐺𝐺𝑟𝑟𝑇𝑇𝑐𝑐𝑐𝑐 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑑𝑑𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐 − 𝑐𝑐𝑐𝑐ℎ𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟𝐹𝐹 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇𝑐𝑐 − 𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟 𝑝𝑝𝑟𝑟𝑇𝑇𝑃𝑃𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝐹𝐹 𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟

PROJECTED AVAILABLE
𝑃𝑃𝑟𝑟𝑇𝑇𝑃𝑃𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝐹𝐹 𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟
= 𝑃𝑃𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑝𝑝𝑟𝑟𝑇𝑇𝑃𝑃𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝐹𝐹 𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 + 𝑆𝑆𝑐𝑐ℎ𝑟𝑟𝐹𝐹𝑟𝑟𝑇𝑇𝑟𝑟 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇𝑐𝑐 + 𝑃𝑃𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝐹𝐹 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇𝑐𝑐
− 𝐺𝐺𝑟𝑟𝑇𝑇𝑐𝑐𝑐𝑐 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑑𝑑𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐.
SECTION H
CAPACITY MANAGEMENT

LEAD TIME
𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 = 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑝𝑝𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 + 𝑄𝑄𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 + 𝑃𝑃𝑟𝑟𝑇𝑇𝑐𝑐𝑟𝑟𝑐𝑐𝑐𝑐𝑟𝑟𝑟𝑟𝑎𝑎 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 + 𝑆𝑆𝑇𝑇𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑐𝑐𝑝𝑝𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟
+ 𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 & 𝑟𝑟𝑟𝑟𝑐𝑐𝑝𝑝𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

CALCULATING CAPACITY AVAILABLE

RATED CAPACITY
𝑅𝑅𝑇𝑇𝑇𝑇𝑟𝑟𝐹𝐹 𝑐𝑐𝑇𝑇𝑝𝑝𝑇𝑇𝑐𝑐𝑟𝑟𝑇𝑇𝐼𝐼 = 𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 × 𝑆𝑆𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝐷𝐷𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 × 𝐵𝐵𝑜𝑜𝑜𝑜𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝐼𝐼

AVAILABLE TIME
𝐴𝐴𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 = 𝐵𝐵𝑟𝑟𝑟𝑟𝑟𝑟𝑝𝑝𝑑𝑑𝑟𝑟𝑟𝑟𝑇𝑇 𝑇𝑇𝑟𝑟 𝑊𝑊𝑇𝑇𝑟𝑟𝑙𝑙𝑟𝑟𝑟𝑟𝑐𝑐 × 𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 𝑉𝑉𝑟𝑟𝑐𝑐𝑙𝑙𝑟𝑟𝑇𝑇

UTILIZATION
𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝐴𝐴𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑇𝑇𝐼𝐼 𝑊𝑊𝑇𝑇𝑟𝑟𝑙𝑙𝑟𝑟𝐹𝐹
𝑆𝑆𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝐷𝐷𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 =
𝐴𝐴𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

EFFICIENCY
𝑆𝑆𝑇𝑇𝑇𝑇𝑟𝑟𝐹𝐹𝑇𝑇𝑟𝑟𝐹𝐹 𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝑃𝑃𝑟𝑟𝑇𝑇𝐹𝐹𝑟𝑟𝑐𝑐𝑟𝑟𝐹𝐹
𝐵𝐵𝑜𝑜𝑜𝑜𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝐼𝐼 =
𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝐴𝐴𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑇𝑇𝐼𝐼 𝑊𝑊𝑇𝑇𝑟𝑟𝑙𝑙𝑟𝑟𝐹𝐹

DEMONSTRATED CAPACITY
𝑆𝑆𝑆𝑆𝑆𝑆 𝑇𝑇𝑜𝑜 𝑆𝑆𝑇𝑇𝑇𝑇𝑟𝑟𝐹𝐹𝑇𝑇𝑟𝑟𝐹𝐹 𝐻𝐻𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 𝑉𝑉𝑟𝑟𝑐𝑐𝑙𝑙𝑟𝑟𝑇𝑇
𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐹𝐹 𝐶𝐶𝑇𝑇𝑝𝑝𝑇𝑇𝑐𝑐𝑟𝑟𝑇𝑇𝐼𝐼 =
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟𝑐𝑐 𝑇𝑇𝑜𝑜 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 𝐵𝐵𝑟𝑟𝑐𝑐𝑙𝑙𝑟𝑟𝑇𝑇

CALCULATING LOAD (CAPACITY REQUIRED)

OPERATION TIME PER WORK ORDER

𝑂𝑂𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟 𝑁𝑁𝑇𝑇𝑟𝑟𝑙𝑙 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 = 𝑆𝑆𝑟𝑟𝑇𝑇𝑟𝑟𝑝𝑝 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 + 𝑅𝑅𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

SECTION J
AGGREGATE INVENTORY MANAGEMENT

INVENTORY COSTS
𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐
= 𝐼𝐼𝑇𝑇𝑟𝑟𝑑𝑑 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝐶𝐶𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙𝑇𝑇𝑟𝑟𝑇𝑇 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐
+ 𝐶𝐶𝑇𝑇𝑝𝑝𝑇𝑇𝑐𝑐𝑟𝑟𝑇𝑇𝐼𝐼 𝑅𝑅𝑟𝑟𝑇𝑇𝑇𝑇𝑇𝑇𝑟𝑟𝐹𝐹 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐.

CARRYING COSTS
𝐶𝐶𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 = 𝐶𝐶𝑇𝑇𝑝𝑝𝑟𝑟𝑇𝑇𝑇𝑇𝑇𝑇 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝑆𝑆𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝑅𝑅𝑟𝑟𝑐𝑐𝑙𝑙 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐
 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝐶𝐶𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 = 𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑜𝑜 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 × 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝐶𝐶𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 𝑅𝑅𝑇𝑇𝑇𝑇𝑟𝑟

ORDERING COSTS
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 = 𝑃𝑃𝑟𝑟𝑇𝑇𝐹𝐹𝑟𝑟𝑐𝑐𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 𝐶𝐶𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑇𝑇 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝑆𝑆𝑟𝑟𝑇𝑇𝑟𝑟𝑝𝑝 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐 + 𝐿𝐿𝑇𝑇𝑐𝑐𝑇𝑇 𝐶𝐶𝑇𝑇𝑝𝑝𝑇𝑇𝑐𝑐𝑟𝑟𝑇𝑇𝐼𝐼 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇𝑐𝑐

AVERAGE ORDERING COST PER ORDER

𝐹𝐹𝑟𝑟𝐹𝐹𝑟𝑟𝐹𝐹 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 = + 𝑉𝑉𝑇𝑇𝑟𝑟𝑟𝑟𝑇𝑇𝑉𝑉𝑇𝑇𝑟𝑟 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐

FINANCIAL STATEMENTS AND INVENTORY

ASSETS, OWNERS’ EQUITY, LIABILITIES

𝐴𝐴𝑐𝑐𝑐𝑐𝑟𝑟𝑇𝑇𝑐𝑐 = 𝐿𝐿𝑟𝑟𝑇𝑇𝑉𝑉𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑟𝑟𝑐𝑐 + 𝑂𝑂𝑁𝑁𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐 ′ 𝐵𝐵𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐼𝐼

INCOME STATEMENT
𝐼𝐼𝑟𝑟𝑐𝑐𝑇𝑇𝑑𝑑𝑟𝑟 = 𝑅𝑅𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 − 𝐵𝐵𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐

GROSS MARGIN
𝐺𝐺𝑟𝑟𝑇𝑇𝑐𝑐𝑐𝑐 𝑆𝑆𝑇𝑇𝑟𝑟𝑎𝑎𝑟𝑟𝑟𝑟 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 − 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐶𝐶𝑂𝑂𝐺𝐺𝑆𝑆

PROFIT MARGIN (NET INCOME)

𝑃𝑃𝑟𝑟𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇 𝑆𝑆𝑇𝑇𝑟𝑟𝑎𝑎𝑟𝑟𝑟𝑟 = 𝐺𝐺𝑟𝑟𝑇𝑇𝑐𝑐𝑐𝑐 𝑃𝑃𝑟𝑟𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇 − (𝑂𝑂𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑎𝑎 𝐵𝐵𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐 + 𝐷𝐷𝑟𝑟𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 + 𝐼𝐼𝑟𝑟𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝑇𝑇 𝐵𝐵𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐)

OPERATING EXPENSES
𝑂𝑂𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑎𝑎 𝐵𝐵𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐 = 𝑆𝑆𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑟𝑟𝑎𝑎 𝑟𝑟𝑐𝑐𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐 + 𝐺𝐺&𝐴𝐴 𝑟𝑟𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐 + 𝐼𝐼𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟𝑐𝑐𝑟𝑟 + 𝐿𝐿𝑟𝑟𝑇𝑇𝑐𝑐𝑟𝑟 𝑟𝑟𝐹𝐹𝑝𝑝𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟

INVENTORY TURNOVER

AVERAGE INVENTORY
𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑇𝑇 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝑆𝑆𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇 + 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑇𝑇 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝐵𝐵𝑟𝑟𝐹𝐹
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 ($) =
2

INVENTORY TURNOVER
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝐶𝐶𝑂𝑂𝐺𝐺𝑆𝑆 ($)
𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟 =
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 ($)

DAYS OF SUPPLY

DAYS OF SUPPLY
𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑟𝑟 𝐻𝐻𝑇𝑇𝑟𝑟𝐹𝐹 (𝑝𝑝𝑐𝑐𝑐𝑐)
𝐷𝐷𝑇𝑇𝐼𝐼𝑐𝑐 𝑇𝑇𝑜𝑜 𝑆𝑆𝑟𝑟𝑝𝑝𝑝𝑝𝑇𝑇𝐼𝐼 = 𝑝𝑝𝑐𝑐𝑐𝑐
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐷𝐷𝑇𝑇𝑟𝑟𝑇𝑇𝐼𝐼 𝑆𝑆𝑐𝑐𝑇𝑇𝑎𝑎𝑟𝑟 ( )
𝐹𝐹𝑇𝑇𝐼𝐼

SAFETY STOCK
SAFETY STOCK FOR A GIVEN SERVICE LEVEL
𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑐𝑐𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 = 𝑆𝑆𝐷𝐷 𝑇𝑇𝑟𝑟 𝑆𝑆𝐴𝐴𝐷𝐷 (𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐) × 𝐴𝐴𝑝𝑝𝑝𝑝𝑟𝑟𝑇𝑇𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟 𝑆𝑆𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟 𝐹𝐹𝑇𝑇𝑐𝑐𝑇𝑇𝑇𝑇𝑟𝑟 𝑜𝑜𝑇𝑇𝑟𝑟 𝑆𝑆𝐷𝐷 𝑇𝑇𝑟𝑟 𝑆𝑆𝐴𝐴𝐷𝐷

SAFETY STOCK BASED ON ACCEPTABLE NUMBER OF STOCKOUTS PER PERIOD

𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 =
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 𝑄𝑄𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝐼𝐼

𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 − 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙𝑇𝑇𝑟𝑟𝑇𝑇 𝑐𝑐ℎ𝑇𝑇𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹

𝐶𝐶𝑟𝑟𝑐𝑐𝑇𝑇𝑇𝑇𝑑𝑑𝑟𝑟𝑟𝑟 𝑐𝑐𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝑟𝑟 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 =
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹

𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑐𝑐𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 = 𝑆𝑆𝐷𝐷 𝑇𝑇𝑟𝑟 𝑆𝑆𝐴𝐴𝐷𝐷 (𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐) × 𝐴𝐴𝑝𝑝𝑝𝑝𝑟𝑟𝑇𝑇𝑝𝑝𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟 𝑆𝑆𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝐹𝐹𝑟𝑟 𝐹𝐹𝑇𝑇𝑐𝑐𝑇𝑇𝑇𝑇𝑟𝑟 𝑜𝑜𝑇𝑇𝑟𝑟 𝑆𝑆𝐷𝐷 𝑇𝑇𝑟𝑟 𝑆𝑆𝐴𝐴𝐷𝐷

ADJUSTING SAFETY STOCK BASED ON LEAD TIME CHANGE

𝑁𝑁𝑟𝑟𝑁𝑁 𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

𝑁𝑁𝑟𝑟𝑁𝑁 𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 = 𝑂𝑂𝑇𝑇𝐹𝐹 𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 × �
𝑂𝑂𝑇𝑇𝐹𝐹 𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

SECTION K
ITEM INVENTORY MANAGEMENT

CALCULATING EOQ

NUMBER OF ORDERS
𝐴𝐴 (𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝐹𝐹𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹)
𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 =
𝑄𝑄 (𝐶𝐶𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇 𝑐𝑐𝑟𝑟𝐷𝐷𝑟𝑟 𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝐼𝐼)

ANNUAL ORDERING COST

𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 = 𝑁𝑁𝑟𝑟𝑑𝑑𝑉𝑉𝑟𝑟𝑟𝑟 𝑇𝑇𝑜𝑜 𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑐𝑐 × 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 (𝑆𝑆)

𝐴𝐴 × 𝑆𝑆
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 =
𝑄𝑄

AVERAGE INVENTORY
𝑄𝑄
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 =
2

ANNUAL CARRYING COST

𝑄𝑄
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑐𝑐𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 = 𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 ( ) × 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 𝑝𝑝𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 (𝑐𝑐) × 𝑐𝑐𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟 (𝑟𝑟)
2
𝑄𝑄 × 𝑐𝑐 × 𝑟𝑟
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑐𝑐𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 =
2

TOTAL INVENTORY COST

𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐼𝐼𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝐶𝐶𝑇𝑇𝑐𝑐𝑇𝑇 = 𝐴𝐴𝑟𝑟𝑟𝑟𝐼𝐼𝑇𝑇𝑇𝑇 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 + 𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑐𝑐𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇
 𝐴𝐴 × 𝑆𝑆 𝑄𝑄 × 𝑐𝑐 × 𝑟𝑟
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 = +
𝑄𝑄 2

EOQ
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑇𝑇𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇 = 𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇 𝑐𝑐𝑇𝑇𝑟𝑟𝑟𝑟𝐼𝐼𝑟𝑟𝑟𝑟𝑎𝑎 𝑐𝑐𝑇𝑇𝑐𝑐𝑇𝑇

𝐴𝐴 × 𝑆𝑆 𝑄𝑄 × 𝑐𝑐 × 𝑟𝑟
=
𝑄𝑄 2

2 × 𝐴𝐴 × 𝑆𝑆
𝑄𝑄2 =
𝑐𝑐 × 𝑟𝑟

2 × 𝐴𝐴 × 𝑆𝑆
𝑄𝑄 = �
𝑐𝑐 × 𝑟𝑟

CALCULATING ORDER POINT

DEMAND DURING LEAD TIME (DDLT)

𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝐹𝐹𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝑇𝑇𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 = 𝑆𝑆𝑟𝑟𝑟𝑟𝑇𝑇𝑐𝑐 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 × 𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟

ORDER POINT
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 𝑃𝑃𝑇𝑇𝑟𝑟𝑟𝑟𝑇𝑇 = 𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝐷𝐷𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑎𝑎 𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 (𝐷𝐷𝐷𝐷𝐿𝐿𝑇𝑇) + 𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 (𝑆𝑆𝑆𝑆)

AVERAGE INVENTORY (WITH SS)

𝑄𝑄
𝐴𝐴𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑎𝑎𝑟𝑟 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 = + 𝑆𝑆𝑆𝑆
2

CALCULATING PERIODIC REVIEW SYSTEM

TARGET MAXIMUM INVENTORY LEVEL

𝑇𝑇𝑇𝑇𝑟𝑟𝑎𝑎𝑟𝑟𝑇𝑇 𝑑𝑑𝑇𝑇𝐹𝐹𝑟𝑟𝑑𝑑𝑟𝑟𝑑𝑑 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 (𝑇𝑇)
= 𝐷𝐷𝑟𝑟𝑑𝑑𝑇𝑇𝑟𝑟𝐹𝐹 𝑝𝑝𝑟𝑟𝑟𝑟 𝑝𝑝𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 (𝐷𝐷) × �𝑅𝑅𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑁𝑁 𝑃𝑃𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝐹𝐹 𝐷𝐷𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 (𝑅𝑅) + 𝐿𝐿𝑟𝑟𝑇𝑇𝐹𝐹 𝑇𝑇𝑟𝑟𝑑𝑑𝑟𝑟 𝐷𝐷𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟 (𝐿𝐿)�
+ 𝑆𝑆𝑇𝑇𝑜𝑜𝑟𝑟𝑇𝑇𝐼𝐼 𝑆𝑆𝑇𝑇𝑇𝑇𝑐𝑐𝑙𝑙 (𝑆𝑆𝑆𝑆)

𝑇𝑇 = 𝐷𝐷 × (𝑅𝑅 + 𝐿𝐿) + 𝑆𝑆𝑆𝑆

ORDER QUANTITY
𝑂𝑂𝑟𝑟𝐹𝐹𝑟𝑟𝑟𝑟 𝑟𝑟𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝑟𝑟𝑇𝑇𝐼𝐼 (𝑄𝑄) = 𝑇𝑇𝑇𝑇𝑟𝑟𝑎𝑎𝑟𝑟𝑇𝑇 𝑑𝑑𝑇𝑇𝐹𝐹𝑟𝑟𝑑𝑑𝑟𝑟𝑑𝑑 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 (𝑇𝑇) − 𝑂𝑂𝑟𝑟 ℎ𝑇𝑇𝑟𝑟𝐹𝐹 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇𝑇𝑇𝑟𝑟𝐼𝐼 𝑇𝑇𝑟𝑟𝑟𝑟𝑟𝑟𝑇𝑇 (𝐼𝐼)

BIBLIOGRAPHY
APICS. “Part 1 Module 1: Basics of Supply Chain Management CPIM 2019 Learning System”. Chicago, Illionois:
APICS, 2019.