Formula sheet for the Midterm & the Final Exam

Module 1 – Introduction – no formulas used

Module 2 – Process Management

R = throughput rate = arrival rate = departure rate (assuming u < 100%)

a = time between arrivals (inter-arrival time) = 1 / R
c = capacity of one unit of a given type of resource
p = process time = 1 / c for one job
m = number of units of a specific type of resource; m c = total capacity
One job type: utilization of a system = u = R / (m c) = R p / m = p / (m a)

Multiple job types: utilization for job type i = ui = Ri pi / m

Total utilization = u = u1 + u2 + …. + un

Little’s Law: I = RT, the Inventory (I) in the system is equal to the arrival
Rate (R) into the system times the Time (T) spent in the system

Cash flow cycle = Days in Inventory + Days Sales Outstanding – Days

Payment Outstanding
Days in Inventory: TI = II/RI
Sales Outstanding (Accounts Receivable): TAR = IAR/RAR
Payment Outstanding (Accounts Payable): TAP = IAP/RAP
 Days payment Cash flow cycle
outstanding (money is “tied up”)

Sell (ship FG)

Pay (for RM)
(receive RM)

Get paid
(for FG)
Buy

Time

t0 t1 t2 t3

Days in inventory Days sales

outstanding

Module 3 – Strategic Positioning

T = total waiting time or throughput time or lead time, so T = Tq + p

For m servers: 𝑇

For 1 server: 𝑇 𝑝
Where CV = coefficient of variation = st.dev. / mean =  / 

Iq = R Tq for the queue and I = R T for the system

Here’s the basic OM Triangle, see next page for a more detailed versions!
The OM Triangle as derived from the Tq formula:

The OM Triangle with explanations for the corner points:

Module 4 – Demand Forecasting

To determine the optimal price and profit given a demand function and
cost, do the following:
1) Formulate the profit function:  = (p – c)q
2) Take the derivative of the profit function
3) Set this derivative equal to zero and solve for p
4) Fill the optimal price in the profit function to derive the optimal profit

These are the different forecasting methods:

Last value – simply take the last value as the forecast for the next value
Averaging – take the average of ALL data as the forecast for the next value
Moving average – take the average of the last n datapoints as the forecast
Weighted moving average – take a weighted average of the last n datapoints
Exponential smoothing –  * last value + (1 – ) * the last forecast

Forecasting Measurements to keep track of:

Mean absolute deviation (MAD): (Sum of absolute errors) / (# forecasts)
Mean square error (MSE): (Sum of square of errors) / (# forecasts)
Mean absolute % error (MAPE): (Sum of errors / demand) / (# forecasts)

Seasonal Factors: Average of Season (e.g., quarter) / Total Average

Linear Regression: Y = a + bX, where X (e.g., Price) is the independent

variable and Y is the dependent variable (e.g., Sales)

Newsvendor steps:
1) Calculate cu and co.
2) Calculate Pc = cu / (cu + co).
3) Find z using a z-table or using the Excel function formula
“=NORM.S.INV(Pc)”.
4) Calculate Q = z σ + μ.
Module 5 – Inventory Management ∗
2𝐾𝑅
𝑄
ℎ
Economic Order Quantity (EOQ):
Where: K = ordering/setup costs; R = demand/rate (per time unit); and
h = holding cost per unit ($/unit/time period)

Average demand over n time units of lead time = 𝑛𝜇

Standard deviation of demand over n time units of lead time = 𝜎√𝑛
Safety stock required when the lead time is n time units = 𝑧 𝜎√𝑛
Reorder point (ROP) for lead time of n units of time = 𝑛𝜇 𝑧 𝜎√𝑛
Where 1 –  is the service level, so  itself is the stock-out rate

Determining a cumulative standard deviation based on different standard

deviations: 𝜎 𝜎 𝜎 ⋯ 𝜎 and if 𝜎 𝜎 ⋯ 𝜎 then
𝜎 𝜎 √𝑛, just like above…

Taktzeit = T / N. Where: T is the total time available and N represents the

number of items/tasks that have to be completed in that time

Module 6 – Quality Management

𝜇 𝐿𝑆𝐿 𝑈𝑆𝐿 𝜇
𝐶 𝑚𝑖𝑛 ,
3𝜎 3𝜎
Where:  is the average output, LSL = Lower Specification Limit, USL =
Upper Specification Limit, and  = the standard deviation in the output.

An X-bar control chart shows how the averages of samples behave over
time compared to the overall average (closer to the overall average is
better!) and an R control chart shows how the range of these observations
behave (lower is better!).

Loss for one specific item: 𝑘 𝑥 𝑡 & Average loss: 𝑘 𝜎 𝜇 𝑡

Where: 𝑘 = cost constant; 𝑥 = specific output; 𝑡 = target output;
𝜎 = standard deviation in the output and 𝜇 = average output.
 Normal Table with z‐values along the edges, and probabilities P(x < z) in the middle
0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990

When you have a z‐value and you want to know the corresponding probability:
1) Find the unit and first digit along the left and the second digit along the top
2) The corresponding left‐tailed probability occurs at the intersection
3) For example: a z‐value of 2.18 results in a left‐tailed probability of 98.54% (P(z < 2.18) = 98.54%)
4) Note: for right‐tailed probabilities, simply take one minus the left‐tailed probability
5) For example: P(z > 1.25) = 1 ‐ 0.8944 = 0.1056 = 10.56%

When you have a probability and you want to know the corresponding z‐value:
1) Find the probability in the area in the middle
2) Read the unit and first digit on the left and the second digit on the top
3) For example: a probability of 54% can be found at a z‐value of 0.10
4) Note: for a probability less than 50%, look for one minus that probability and take the negative
5) For example: for a probability of 32%, look for 68% at z = 0.47, so z = ‐0.47 (P(z < ‐0.47) = 32%)