Demand Management (S&OP)

Moving Average Forecast Logic

New Forecast (month 4) = (sum of demand for 3 months) (3 of months)
Exponential Smoothing Logic ( = smoothing constant)
New Forecast = x (latest demand) + (1- ) x (old forecast)
Seasonal Forecast
Seasonal index = period average demand by average demand for all periods
Deseasonalized demand = annual forecast by number of periods
Expected quarter demand = Seasonal index x Deseasonalized demand
Mean Absolute Deviation (MAD)
MAD = sum of absolute errors by number of periods
+1 MAD = 60%, +2 MAD = 90%, +3 MAD = 98% .
Tracking Signal (TS)
TS = sum of absolute errors MAD
Ending Inventory (EI)
EI = Opening Inventory (OI) + Planned Production Forecast Demand

Master Planning (MPS)

Projected Available Balance (PAB)
Ending PAB = Beginning PAB + MPS Scheduled Receipt Forecast Demand
Available To Promise (ATP)
ATP = Stock On-Hand + MPS Scheduled Receipt on period 1 Customer orders
due before next MPS Scheduled Receipt

Material Requirements Planning (MRP)

Gross & Net Requirements
Net Requirements = Gross Requirements Projected Available Inventory

Capacity Management & Production Activity Control (PAC)

Available Time (Capacity)
Capacity = (# of shifts) X (# of hours a day) X (# of machines) X (# of days a
week)
Utilizations (%)
Utilization = (Hours actually worked) by (Available hours) (%)
Efficiency (%)
Utilization = (Standard Hours of Worked Produced) by (Hours actually
worked) (%)

Rated Capacity
Rated Capacity = Hours available X Efficiency X Utilization
Demonstrated Capacity (standard hours)
Demonstrated Capacity = sum of standard hours of n past periods / n past
periods
Lead Time Production (LTP)
LTP = Queue Time + Setup Time + Run Time + Waiting Time + Moving Time
Operation Time
Operation Time = Setup Time + Run Time
Load of a worked Order
Load = Operation Time per work order = number of pieces x Run Time + Setup
Time
Critical Ratio
Critical Ratio = Actual time remaining Lead Time remaining (work remaining)
(< 1 = late, = 1 = on-time, > 1 = ahead)
Input / Output Control
Backlog = Previous backlog + input output
Cumulative variance = previous variance + actual - planned

Aggregate Inventory Management

Inventory
Inventory = Raw Material + Work-In-Process (WIP) + Finished Goods +
Distribution Inventories + Maintenance, repair & operating supplies (MRO)
Inventory Cost
Inventory Cost = Item Cost + Carrying Cost + Ordering Cost + Stockout Cost +
Capacity-Related Cost
Item Cost
Item Cost = Purchased Cost + Manufactured Cost
Purchased Cost = Products Cost + Landed Cost
Landed Cost = Transportation + Customs Duties + Insurance
Manufactured Cost = Direct Material + Direct Labor + Factory Overhead
Carrying Costs
Carrying Costs = Capital Cost + Storage Cost + Risk Cost
Total Cost of carrying Inventory = Carrying Cost x Average Inventory
Ordering Cost
Ordering Cost = Factory Orders Cost + Purchasing Orders Cost
Factory Orders Cost = Production Control Cost + Setup and Teardown Cost +
Lost Capacity Cost
Stockout Cost

Stockout Cost = Backorder cost + Lost sales cost + Lost customers cost +
Expediting cost + Additional manufacturing and purchasing cost
Factory Orders Cost = Production Control Cost + Setup and Teardown Cost +
Lost Capacity Cost
Balance Sheet
Owner's Equity = Assets - Liabilities
Income Statement
Income = Revenues Expenses
Gross margin = Revenue Manufactured Cost (Cost of Goods Sold)
Net Income (profit) = Gross margin General and administrative expense
Inventory Turns
Inventory turns = Annual costs of goods sold by average inventory
Days of Supply
Days of Supply = Inventory in-hand by average daily usage

Item Inventory Management

Average Inventory
Average Inventory = Q (Lot size) by 2
Inventory carrying costs
Inventory carrying cost = Q/2 (Average inventory) x c (cost per unit) x I
(carrying cost rate)
Total Inventory Cost
Total Inventory Cost = Annual ordering cost + Annual carrying cost
Economic Order Quantity
Inventory carrying cost = Ordering cost, so it is: Q x i x c / 2 = A x S / Q
EOQ = squared (2 x A x S / (i x c))
A = Annual Units
Order Point
Order Point = Demand during lead time (DDLT) + Safety Stock (SS)
Periodic Review System
To do
ABC Classification
ABC Classification = A, 20% Items, 80%$ - B, 30% Items, 15%$ - C, 50% Items,
5%$