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Calculate a Production Plan with the Inventory Chain Template Intermediate Cost Analysis and Management © 2011 What is a Forecast? • • • • • A forecast is a plan for the future based on estimates, strategies and historical data Represents a standard for comparison to actual performance Implies a commitment to an agreed-upon level of output at an agreed-upon cost Encourages “What-If?” scenarios May or may not be tied to the legal budget © 2011 Terminal Learning Objective • • • Task: Calculate a Production Plan with the Inventory Chain Template Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors Standard: with at least 80% accuracy: • Identify and enter relevant scenario data into macro enabled templates to calculate Production Needs, then Plan Direct Labor, Overhead and Forecast Material Purchases © 2011 Consider the Following Process Flow • Building, manufacturing, and all other processes start with inputs and physically progress to outputs • Purchase meat for freezer, move from freezer to refrigerator to defrost, move to grill, move to table © 2011 Planning’s Key Difference: Backward Chaining • • • • Planning starts with outputs and end state goals and logically works backwards to determine needed inputs If you are planning a menu with a desired output of ten burgers you will have to work backwards through the process If there is no inventory in the refrigerator and freezer, you will need to purchase hamburger meat for ten burgers If you wish to maintain inventories in the refrigerator and freezer for future cookouts you will need to specify output and inventory end states in order to plan properly © 2011 Input-Output Equation Beginning + Input – Output = End If you take more water out of the bucket than you put in, what happens to the level in the bucket? © 2011 Using the Equation • • Given any three of the Variables, can Solve for the fourth Example: How much Fuel did my Car Use? • • • Start with a Full Tank Drive 300 miles Re-Fill Tank, using 10 gallons Full Tank + 10 gallons – Output = Full Tank Full Tank + 10 gallons = Output + Full Tank Full Tank + 10 gallons = Output + Full Tank © 2011 The Input-Output Equation Inventory Beginning Input Output Ending Beginning + Input – Output = Ending © 2011 Material Requirements Planning Inventory Inventory Beginning Input Inventory Beginning Output Input Ending Beginning Output Input Ending © 2011 Ending Output Learning Check • • How does a forecast differ from The Budget? Where does the planning process begin? © 2011 10 Real World Complexities • • These simple concepts are applied through materials requirement planning (MRP) systems in much more complex situations Consider the complexities of: • • • Automobile manufacturing Computer assembly Making and launching a space shuttle especially when you consider the lead times of purchasing • and assembly! Can you see applications for ARFORGEN? © 2011 23 But My Organization Doesn’t Have Inventory! • What about staffing and training requirements? • • Not having an adequate supply of trained workers can be costly • • Ex Air traffic controllers, Nuclear reactor operators Overtime, exhaustion, errors A “Just-in-Time” effort requires even more careful planning © 2011 24 Learning Check • • How does the Bill of Materials affect the materials planning process? What are the non-manufacturing applications of Materials Resource Planning? © 2011 25 Planning’s Impact on Cost • Plans have financial consequences • • • • There are costs of our burger production process Fixed costs are energy and labor in this example Variable costs are dependent on the number of burgers produced Flexible Forecasting • Uses same assumptions for fixed and variable costs per unit, only changing (flexing) volume © 2011 26 Flexible Forecast Example • Assumptions: • • Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 10 12 Var Cost Fixed Cost Total Cost © 2011 27 Flexible Forecast Example • Assumptions: • • Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 10 Var Cost 50 Fixed Cost 20 Total Cost 70 © 2011 12 28 Flexible Forecast Example • Assumptions: • • Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 10 Var Cost 40 50 Fixed Cost 20 20 Total Cost 60 70 © 2011 12 29 Flexible Forecast Example • Assumptions: • • Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 10 12 Var Cost 40 50 60 Fixed Cost 20 20 20 Total Cost 60 70 80 © 2011 30 Flexible Forecast Example with Revenue • Assumptions: • • • Price per Unit = $10 Fixed Cost = $20 Variable Cost per Unit = $5 Burgers Sold 10 12 Revenue Var Cost Fixed Cost Profit © 2011 31 Flexible Forecast Example with Revenue • Assumptions: • • • Price per Unit = $10 Fixed Cost = $20 Variable Cost per Unit = $5 Burgers Sold 10 12 Revenue 80 100 120 Var Cost 40 50 60 Fixed Cost 20 20 20 Profit 20 30 40 © 2011 32 Learning Check • • How does total cost change as quantity produced increases? What is a flexible forecast? © 2011 33 Practical Exercise © 2011 34 Planning/Flexible Forecasting Spreadsheet Enter basic cost information and various production levels to calculate the flexible forecast © 2011 35 Planning/Flexible Forecasting Spreadsheet Enter Data in the Bill of Materials tab to calculate Production and Materials Purchase Plan â 2011 36 Practical Exercise Complete Practical Exercise © 2011 37 ... (OE)/Contemporary Operational Environment (COE) variables and actors Standard: with at least 80% accuracy: • Identify and enter relevant scenario data into macro enabled templates to calculate Production. .. What are the non-manufacturing applications of Materials Resource Planning? â 20 11 25 Plannings Impact on Cost Plans have financial consequences • • • • There are costs of our burger production. .. Production Plan with the Inventory Chain Template Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational