Inventory & Material Mangement Formulas
Two period Moving Average
Yt = forecasted demand for period t
Yt-i=actual demand in period t-i
 Yt-i n= number of period included in moving average
Yt= -------------------
n
Regression Analysis
Slope Intercept formula: y=ax+b
where: y=Y intercept
tiYi - ( ti)( Yi)
b= ----------------------------
nt2 - (ti)2
Yi - b ti
a= --------------------------
n
[ntiYi - (ti) (Yi)]2
Correlation Coefficient = ------------------------------------------------
[ n t2 - (ti)2][ n Y2 - (Yi)2]
Economic Order Quantity
------------- Where: Q = Economic Order Quantity
/ 2CR C = Cost of order
Q= \ / --------- R = Annual demand in units
\ / H H = PF = Annual holding cost
P = Purchase cost of an item
F = Annual holding cost as a fraction of unit cost
R
m = ---- = expected Number of Orders / year
Q
----------
1 Q / 2C
T = ---- = ---- = \ / ------- = Average order interval
m R V RH
RL RL
B = ------ = Reorder point B = -------
12 52
Where: L = Lead time in months Where: L = Lead time in weeks
TC = RP + HQ Where TC = Minimum Annual Cost
Economic Order Quantity with Backordering
--------- -------- Where: Q = Economic Order Quantity
/ 2CR / H + K C = Cost of order
Q = \ / --------- \ / --------- R = Annual demand in units
\ / H \ / K H = PF = Annual holding cost
P = Purchase cost of an item
F = Annual holding cost as a fraction of unit cost
K = Backordering cost per unit per year
V = Maximum inventory level in units
--------- --------
/ 2CR / K
V = \ / --------- \ / ---------
\ / H \ / H + K
RL
R = ----- - (Q - V) Where: N = Number of operating days in a year
N L = Lead time in days
Q - V
D = ------- = Where: D = Longest dalay time
R
R
CR HV2 K(Q - V)2 Where: --- = Number of orders per year
TC = RP + --- + ---- + ----------- = Total Cost Q
Q 2Q 2Q
References:
- Principles of Inventory and Material Management
Richard J. Tersine
- An Introduction to Management Science Quantitative Approaches to Decision Making
David R. Anderson, Dennis J. Sweeney, Thomas A. Williams
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