Calculate A Production Plan With The Inventory Chain Template Principles of Cost Analysis and Management © Dale R Geiger 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 © Dale R Geiger 2011 Terminal Learning Objective • • Task: Calculate A Production Plan With The Inventory Chain Template • Standard: with at least 80% accuracy: Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors • Identify and enter relevant scenario data into macro enabled templates to calculate Production Needs, then Plan Direct Labor, Overhead and Forecast Material Purchases © Dale R Geiger 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 © Dale R Geiger 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 © Dale R Geiger 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? © Dale R Geiger 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 © Dale R Geiger 2011 The Input-Output Equation Inventory Beginning Input Output Ending Beginning + Input – Output = Ending © Dale R Geiger 2011 Material Requirements Planning Inventory Inventory Beginning Input Inventory Beginning Output Input Ending Beginning Output Input Ending © Dale R Geiger 2011 Ending Output Check on Learning • • How does a forecast differ from The Budget? Where does the planning process begin? © Dale R Geiger 2011 10 Pantry S’mores Marshmallows Beg Purchase 37 30 - Assembly End 12 Graham crackers Grill Beg Beg Beg Purchase 74 60 End 20 per unit Assemble 30 30 To grill Cook 30 - - End End Chocolate squares Beg 30 Purchase 100 120 End 10 © Dale R Geiger 2011 21 30 To table Pantry S’mores Marshmallows Beg Purchase 37 30 - Assembly End 12 Graham crackers Grill Beg Beg Beg Assemble 30 Purchase 74 60 End 20 Chocolate squares Cook 30 - - End End 44pp eerr uunn iitt - 30 To grill Beg 30 Purchase 100 120 End 10 © Dale R Geiger 2011 22 30 To table 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? © Dale R Geiger 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 © Dale R Geiger 2011 24 Check on Learning • • How does the Bill of Materials affect the materials planning process? What are the non-manufacturing applications of Materials Resource Planning? © Dale R Geiger 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 © Dale R Geiger 2011 26 Flexible Forecast Example • Assumptions: • • Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 10 12 Var Cost Fixed Cost Total Cost © Dale R Geiger 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 © Dale R Geiger 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 © Dale R Geiger 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 © Dale R Geiger 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 © Dale R Geiger 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 © Dale R Geiger 2011 32 Check on Learning • • How does total cost change as quantity produced increases? What is a flexible forecast? © Dale R Geiger 2011 33 Practical Exercise © Dale R Geiger 2011 34 Practical Exercise © Dale R Geiger 2011 35 ... Budget? Where does the planning process begin? © Dale R Geiger 2011 10 Demonstration Problem • • • Planning assumptions • • • • Output goal is 10 Planned ending grill inventory is Planned ending refrigerator... S’mores • Planned production is 30 s’mores Marshmallows Graham crackers Chocolate squares Pantry contains: 30 Planned ending: 12 20 10 • • Beginning state of Assembly and Grill is zero units Planned... applications of Materials Resource Planning? © Dale R Geiger 2011 25 Planning’s Impact on Cost • Plans have financial consequences • • • • There are costs of our burger production process Fixed costs