How to Calculate the Most Effecient Order Quantity or Economic Order Quantity- EOQ
Here is the scenario. You're considering how much inventory to buy for an online business. You know how much you've sold in the past so you're able to calculate the Average or Mean monthly or weekly sales (aka Demand). You are also able to calculate the Standard Deviation for this demand using your actual sales numbers. (If you don't know what your Demand and Std. Dev are, you should probably use your best guess.)
There are multiple configurations for this scenario. Is this a one-time event, e.g, you're ordering for the holidays or is this something where you have constant demand and you just need to establish an efficient Re-Order point that takes into consideration service level agreements, lost opportunities, ordering costs, and liquidation costs?
Here is the basic formula for Excel: =SQRT((2*DEMAND*ORDERING_COSTS)/(CARRYING_COSTS))
Where Demand= Number you expect to sell
Ordering Cost = The cost of placing the order (this is NOT the unit cost)
Carrying Cost = The cost of carrying inventory-this includes things like shrinkage, warehousing, etc. This should be calculated as a percentage of the unit cost. For example, if it costs me $10 for a widget and 10% to maintain it, the inventory carrying cost is = (10 *.10) = $1.
For a more detailed explanation, please see this website: Economic Order Quantity- EOQ
Also, see this Spreadsheet with some examples of One-Time event ordering. One Time Event Ordering.
I'll post some additional examples as soon as I get more time.
(Disclaimer- this is material adapted from an Operations Class at the University of Utah and not my original material)
International Trade
I've always been fascinated by all aspects of international business. I'm enrolled in an international management course being taught by a career diplomat. As I pick up interesting facts or resources, I'm going to post them here.
Here is the first: http://www.export.gov/tradedata/index.asp. This is a site with trade data report. You can pick almost any product or category and start researching the numbers.
TagCrowd- generate a tag cloud
You have probably seen them on blogs, they are the box of words where words are different sizes and colors. They are known as "Tag Clouds" in internet parlance.
As it relates to blogging and websites, BIGGER words represent more frequent appearances in posts. If you click on one of the words, it brings up all posts that have used that "tag". If you're asking yourself, "What is a Tag?", wonder no more.
A TAG is an association to a topic, subject, project, etc. For example, when I wrote this article, I thought of the tags that summarize this post. They include: Tag cloud, blog, big words, how to, resources for websites, and several more.
More and more things are taking advantage of tags. For example, instead of creating folders for your email, some email programs let you enter tags. When you want to find that email, you simply search for all the tags that are related to the email you're trying to find.
Not too long ago a friend of mine told me about this site: http://www.tagcrowd.com. You can create a tag cloud from a list of words that you've created. Why would you want to do this? Well.... if you want to reach the technologically advanced, you could create a tag crowd graphic for a presentation, brochure, etc. TagCrowd.com makes it easy. However, the ironic thing about this service is that they failed to include examples of tag clouds so others could see what they're all about. I sent them an email to suggest that they should create a gallery of clouds that have been created on their site.
To show you how it works, I copied the text from this blog and pasted it on TagCrowd. Here is an example of a Tag Cloud that was created as a result:
Calculate DPMO for Six Sigma
If you have the short term sigma score, you can enter it in this spreadsheet to get the DPMO.
If you have the DPMO and need the short term sigma score, you can enter it in this spreadsheet.
How smaller companies can outperform larger companies with deep pockets
What do you do if you find yourself competing against a much larger, more recognized competitor? You probably already know the answer: you focus on customers, not competitors. If you can meet the needs of your customers better than anyone else, you'll keep them longer and be able to charge more. It's kind of like becoming a specialist such as when a doctor chooses a focus in order to charge more for his/her specialized knowledge. The key is to understand the market potential, e.g., size, before you commit to a specific focus.
In addition, here are three questions that you need to answer:
- What are your differentiating capabilities? How will you be different or better than competitors? You should try and stay away from "lower cost" as that has scalability issues. What changes can you make to solidify your position?
- Who are your customers? Keep in mind that your perception of who your customers are may not be accurate. Take the time to meet with your customers. Ask them questions about other ways you can meet their needs. What made your existing customers choose you over competitors?
- What expansion plans or diversification can you employ without sacrificing quality? There may be a temptation to do more than you could reasonably do. Avoid this as it could lead to your undoing.
For additional details, ideas and a case study of what could be done, take a look at "When New Products and Customer Loyalty Collide" by Regina Fazio Maruca and Amy L Halliday in the Harvard Business Review from November-December, 1993.
Software development- continuous deployment
I was delighted to read this post about the efficiencies of doing "Continuous deployment". My software company has been doing this for years with really good success. Of course we've run into problems from time to time but all in all our customers have been really happy with the process. They've gotten what they've needed at a fraction of the cost of traditional development.
I used to try and explain our approach by telling people that we followed an "Agile" development process or an "XP development" process but in reality we have been doing continuous deployment. They key is using principles that are rooted in continuous improvement processes such as Six Sigma and asking the "5 Why's" and looking at root causes.
Read more about how to gets started with continuous deployment and some things you can do to maximize your chances for success: Continuous Deployment.
Here are some other relevant links: Lessons Learned Case Study and 5 Steps for Continuous Deployment.
Process driven approach is key to improving online marketing results
If you're in marketing you know this all too familiar rule. The top paid person usually decides which creative should be used. That means they are deciding what they think not only represents the brand and marketing strategy but also the creative they think will be most effective. However, this is where they could be wrong. Pretty doesn't always mean effective.
Here is a video cast that I came across that makes this point. It goes into detail about how to have a structured approach to email marketing. This process based approach is applicable to not only email marketing but all other electronic marketing mediums and traditional mediums as well.
Here's the link: Five Best Ways to Optimize Email Marketing
Six Sigma- What is it, how to use it, etc
This is NOT my material. This is from an MBA course at the University of Utah.Six_Sigma_Introduction
Here are the key steps for Six Sigma's DMAICÂ (they are further defined in the PDF).
- Define
- Measure
- Analyze
- Improve
- Control
Using Excel to determine a portfolio’s Mean, Variance and Standard Deviation
9/23/10 Update. I've uploaded an image to show that there is a video to show you how to do this.You will still probably want to see the text version of these instructions below.
Okay, so you probably don't really want to know how to do this but this is also a reference for me when I need to do it in the future.
Here's the scenario: You have several stocks and you want to know what their combined returns and risk are. This is how you can figure it out.
Step 1: Set up the percentages
Step 2: Calculate the sample mean (average return for the individual stocks)
Step 3: Label the percentage as "p". This represents the proportion of the portfolio that is in a particular stock. This is how you name a range of cells. You highlight them and then give it a name in the top right in the "Name box".
Step 4: Label the sample mean as "mu".
Step 5: Use Excel to create a Covariance matrix. You'll need to install the data analysis tools in excel in order to do this. See below for a video on how to do this.
Step 6: Populate the rest of the covariance matrix by using "paste special".
Step 7: Name the covariance matrix results "sigma".
Step 8: Use this formula to calculate the "mean": =MMULT(TRANSPOSE(p),mu). After you've entered that formula, you have to hit "shift, ctrl, and enter" at the same time because it's a special function in Excel.
Step 9: Use this formula to calculate the "Variance": =MMULT(MMULT(TRANSPOSE(p),sigma),p). Again, after you've entered that formula, you have to hit "shift, ctrl, and enter" at the same time because it's a special function in Excel.
Step 10: Use the sqrt function in excel on the Variance to get the Standard deviation for the portfolio.
I really don't think you would be able to follow that based on my instructions so I've included a short video to show you how. Video: Using Excel to calculate a portfolio's mean, variance and standard deviation.
Here is a video showing you how to turn on Data Analysis tools in Excel.
