Supply Chain Formula
1. Economic Order Quantity (EOQ): EOQ = sqrt((2DS)/H)
- Application: Determines the optimal order quantity that minimizes inventory holding.
- D: Demand rate (units per time period)
- S: Setup or ordering cost per purchase order
- H: Holding cost per unit per time period
2. Reorder Point (ROP): ROP = DLT
- Application: Identifies the inventory level at which a replenishment order should be placed to avoid stockouts.
- D: Average daily demand (units per time period)
- L: Lead time (time period)
- T: Safety stock factor (to account for demand variability)
3. Safety Stock: Safety Stock = (Z * sigma * sqrt(LT)) + Buffer Stock
- Application: Accounts for demand variability and uncertainty during lead time to protect against stockouts.
- Z: Z-score for desired service level (corresponds to a specific service level percentage)
- sigma: Standard deviation of demand (units)
- LT: Lead time (time period)
4. Total Cost of Ownership (TCO): TCO = FC + VC + IC
- Application: Evaluates the full cost of procuring and maintaining a product or service.
- FC: Fixed costs (e.g., purchase cost, implementation cost)
- VC: Variable costs (e.g., operating costs, maintenance costs)
- IC: Inventory carrying costs (e.g., storage, insurance, obsolescence)
5. Service Level: Service Level = (1 - Stockouts / Total Demand) * 100
- Application: Measures the ability to fulfill customer demand without stockouts.
- Stockouts: number of instances where demand exceeds available stock
- Total Demand: total demand during a specific period (units)
6. Capacity Utilization Rate: Capacity Utilization Rate = (Actual Output / Maximum Possible Output) * 100
- Application: Evaluates how efficiently a facility or resource is being utilized.
- Actual Output: actual production quantity or output (units)
- Maximum Possible Output: maximum capacity or production quantity (units)
7. Cycle Time: Cycle Time = Production Time / Output Quantity
- Application: Measures the time required to complete a process or produce a unit.
- Production Time: time taken to produce a batch or unit (time period)
- Output Quantity: number of units produced (units)
8. Order Cycle Time: Order Cycle Time = Order Receipt to Delivery Time
- Application: Measures the time taken from receiving an order to delivering it.
- Order Receipt to Delivery Time: elapsed time for an order to be processed and delivered (time period)
9. Fill Rate: Fill Rate = (Total Units Shipped / Total Units Ordered) * 100
- Application: Evaluates the percentage of ordered units that are successfully filled.
- Total Units Shipped: number of units shipped (units)
- Total Units Ordered: number of units ordered (units)
10. Gross Margin: Gross Margin = Revenue - Cost of Goods Sold
- Revenue: total sales revenue (currency)
- Cost of Goods Sold: direct costs of producing goods (currency)