Formulas for closed-book OPRE 6302 Exams

Reminder for Statistics:

∑iN=1 Xi ∑ N ( Xi − X̄ )2
• Given a population { X1 , X2 , . . . , X N }, Mean: X̄ = ; Variance: Var( X ) = i=1 .
N N
√
Standard deviation for the population: σ = Var( X ). Coefficient of Variation for the population: CV = σ/ X̄.

• Exponential distribution fits well to interarrival times to a queue and it has a CV of 1.

Prob(exponential random variable with mean µ ≤ t) = 1 − e−t/µ

• For a normal random variable N (µ, σ2 ), ( N (µ, σ2 ) − µ)/σ = N (0, 1) is the standard normal random variable. If
we sum L many independent normal random variables N (µ, σ2 ), the sum is a normal random variable N ( Lµ, Lσ2 ).

 normdist( x, mean, stdev, 0) : normal probability density at x,
Excel’s Normal Probability functions: normdist( x, mean, stdev, 1) : normal cumulative density at x,

nominv( prob, mean, stdev) : inverse of the cumulative density at prob.

Areas under the standard normal curve from −∞ to z and L(z) = normdist(z, 0, 1, 0) − z ∗ (1 − normdist(z, 0, 1, 1)):

z 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4
Area 0.54 0.58 0.62 0.66 0.69 0.73 0.76 0.79 0.82 0.84 0.86 0.88 0.9 0.919
L(z) 0.35 0.31 0.27 0.23 0.20 0.17 0.14 0.12 0.10 0.08 0.07 0.06 0.05 0.037
z 1.5 1.6 1.65 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6
Area 0.933 0.945 0.950 0.955 0.964 0.971 0.977 0.982 0.986 0.989 0.992 0.994 0.995
L(z) 0.029 0.023 0.020 0.018 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.001

OPRE 6302 Formulas:

The following formulas until the diamond sign ⋄ are included after students specifically asked for them.

1 COGS
Inventory turns = = .
Flow time Value of the Inventory
Annual Inventory Cost
Annual Per Unit Inventory Cost = .
Number of Inventory Turns Per Annum
Process capacity = Min{Capacity of Res 1, . . . , Capacity of Res 2}.

Thruput = Min{Input rate, Process capacity, Demand rate}.

Operating time per week
Requested cycle time = .
Demand per week
1
Designed cycle time = .
Process Capacity
1
Flow rate = .
Cycle time
Total Wages
Cost of direct labor = .
Flow Rate
Idle time for worker at resource i = Cycle time × Number of workers at resource i

− Activity time at resource i.

 Labor content
Average labor utilization = .
Labor content + Total idle time
Flow Rate
Process Utilization = .
Process Capacity
Capacity Requested by Demand
Implied Utilization =
Available Capacity
Time to make X units = Time through empty system + (X-1)/Process Capacity

= Time through empty system + (X-1)Cycle Time.

Replace X-1 with X for continuous production.

Batch Size
Capacity given Batch Size = .
Set-up time + Batch-size*Time per unit
Flow Rate * Setup Time
Recommended Batch Size = .
1-Flow Rate*Time per Unit
Return Return Revenue
Return on invested capital = = ;
Invested Capital Revenue Invested Capital
Return Revenue - Fixed costs - Flow rate*Variable costs
= ,
Revenue Revenue
Revenue Flow Rate*Price
= .⋄
Invested Capital Invested Capital

Little’s Law: Average Inventory = Average Flow rate * Average Flow time.

Economic Production/Order Quantity model to find lot size Q:

R: Demand rate per time. P: Production rate per time. K: Fixed (Setup) cost. h: Holding cost rate per
time per unit.
Average Inventory=Q/2. Length of an Inventory Cycle=Q/R.

1Q KR
Total EPQ cost per time = C ( Q; P) = ( P − R)h +
|2 P {z } Q
|{z}
Inventory holding cost per time Set up cost per time
√
2KR
EPQ( P) =
(1 − R/P)h

Set P = ∞ to obtain EOQ. Specifically,

1 KR
Total EOQ cost per time = C ( Q; P = ∞) = Qh +
2
|{z} Q
|{z}
Inventory holding cost per time Set up cost per time
√ √
2KR 2KR
EOQ = = lim = EPQ( P = ∞)
h P→∞ (1 − R/P)h
√
With P = ∞ and Q = EOQ, the total cost C ( Q) per time becomes C ( Q = EOQ; P = ∞) = 2KRh.
 Level production plan:

The regular production is kept constant (level) over periods and demand fluctuations are satisfied
with overtime production. If the regular production has a capacity then, we may be forced to produce at
that capacity. In general,
{ }
Sum of the demands
Regular production quantity = min , Regular production capacity
Number of periods

Here is an example, suppose the demand for the next two weeks are 50 and 100 and the regular pro-
duction capacity is 70. We can produce only 140 units in two weeks on regular time. The remaining 10
(=150-140) units are produced in overtime. It is better to do the overtime in the second week to save on
inventory holding. Then the regular production is 70 and 70 in the first and the second week while the
overtime production is 0 and 10 units in the first and the second week.

Queues

CVa = St.Dev.of interarrival time/Aver. interarrival time. CVp = St.Dev.of service time/Aver. service time.
CVa and CVp are CV of interarrival and service times.
If a queue with m servers has average interarrival times a and activity times p, its utilization u and the
approximate expected waiting time Tq are:
( √ )( )
p (p)u 2(m+1)−1 CVa2 + CVp2
u= . Tq = .
am m 1−u 2

Then, we have: T = Tq + p. Ip = m · u. I = Iq + I p . Iq = (1/a) Tq . I = (1/a)( Tq + p).

Total wages per time m ∗ Wages per time p ∗ Wages per time
Cost of Direct Labor = = =
Flow rate per time 1/a u

If a queue with m servers has average interarrival times a and activity times p, let r := p/a, then

(r m )/(m!)
Prob(All servers are busy) = or use Erlang loss table.
∑im=0 (ri )/(i!)
1
The rate of served output = Prob(Not all servers are busy).
a
Quality

• If the sandard deviation of a population is σ, then the standard deviation of the sample means of
this population is
σ
σX̄ = √
n
where n is the size of each sample.

• Control charts:
 Mean Chart: UCL=Average of Sample Means + z · StDev of Sample Means
LCL=Average of Sample Means − z · StDev of Sample Means
where we choose z so that Type I error probability is α. One can also use
LCL=norminv(α/2,mean,stdev), UCL=norminv(1-α/2,mean,stdev).
One can also use
LCL=Average of Sample Means − A2 · R̄, UCL=Average of Sample Means + A2 · R̄.

Range Chart: LCL=D3 R̄ and UCL=D4 R̄. Standard deviation can be estimated by σX̄ = R̄/d2 .

Table for A2 , D4 , D3 and d2 under 99.74% or 3σX̄ confidence:

Sample size A2 D3 D4 d2 Sample size A2 D3 D4 d2
2 1.88 0 3.27 1.12 6 0.48 0 2.00 2.53
3 1.02 0 2.57 1.69 7 0.42 0.08 1.92 2.70
4 0.73 0 2.28 2.06 8 0.37 0.14 1.86 2.85
5 0.58 0 2.11 2.33 9 0.34 0.18 1.82 2.97

For p-chart with sample size n:

√
p̄(1 − p̄)
StDev of Sample Mean =
n
• Process capability:
Upper specification level − Lower specification level
Cp = Process capability ratio =
6σX̄
Inventory

• The newsvendor optimal order quantity formula:

Cu
In-stock Probability = Prob(Demand ≤ Q) =
Cu + Co
• Expected (lost sales=shortage) in a season = E(max{Demand in a season − Q, 0}). When the de-
mand is normally distributed with mean µ and standard deviation σ, the expected lost sales is σ × L(z),
where
Q−µ
z= and L(z) = normdist(z, 0, 1, 0) − z ∗ (1 − normdist(z, 0, 1, 1))
σ
• Demand=Sales+Lost Sales and Inventory=Sales+Left Over Inventory.
Expected demand = µ = Expected sales + Expected lost sales.
Inventory = Q = Expected sales + Expected left over inventory.
• Service measures:
Instock probability = Prob(Demand ≤ Q)
Expected sales Expected lost sales
Fill rate = = 1−
Expected demand Expected demand

• Inventory level=(On-hand inventory)-(Backorder) and Inventory position=(Inventory level)+(On-

order inventory)
• In the basestock policy, we keep inventory position at S to cover (lead time + 1) periods’ demand.
Basestock is just another name for order-up-to level.