Calculate A Production Plan With The Inventory Chain Template © Dale R. Geiger 20111

What is a Forecast? plan A forecast is a plan for the future based on estimates, strategies and historical data standard Represents a standard for comparison to actual performance commitment 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 20112

Terminal Learning Objective Task: Calculate A Production Plan With The Inventory Chain Template 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 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 © Dale R. Geiger 20113

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 20114

Planning’s Key Difference: Backward Chaining outputsend state goals inputs 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 20115

Input-Output Equation 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 20116

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 © Dale R. Geiger 20117

The Input-Output Equation Inventory Beginning InputOutput Ending Beginning + Input – Output = Ending © Dale R. Geiger 20118

Material Requirements Planning © Dale R. Geiger Inventory Beginning InputOutput Ending Inventory Beginning InputOutput Ending Inventory Beginning InputOutput Ending

Check on Learning How does a forecast differ from The Budget? Where does the planning process begin? © Dale R. Geiger

Demonstration Problem Planning assumptions Output goal is 10 Planned ending grill inventory is 0 Planned ending refrigerator inventory is 35 Planned ending freezer inventory is 20 Known facts Actual beginning grill inventory is 0 Actual beginning refrigerator inventory is 10 Actual beginning freezer inventory is 30 How many burgers should you plan to purchase and put into the freezer? © Dale R. Geiger planned end states starting points planned action

Backward Chaining Demonstration Freezer Beg  Purchase End  To frig © Dale R. Geiger Refrigerator Beg Defrost End  To grill

Backward Chaining Demonstration FreezerGrill Beg  Purchase End  To frig Beg 0 Cook End 0 Beg 0 Cook End 0 10  To table © Dale R. Geiger

Backward Chaining Demonstration Grill Beg 0 Cook End 0 Beg 0 Cook End 0 10  To table © Dale R. Geiger Refrigerator Beg 10 Defrost End  To grill

Bill of Materials Of course, the real world gets more complicated Rather than eating plain hamburgers you might specify the following bill of materials: Buns Cheese Pickles, onion, lettuce, and tomatoes Mustard, ketchup, mayo How would this affect your planning? © Dale R. Geiger

S’mores After the cookout you plan to make s’mores on the grill The bill of materials for each s’more is: 1 marshmallow 2 graham crackers 4 chocolate squares The process flow is: Pantry  Assembly  Grill © Dale R. Geiger

S’mores Planned production is 30 s’mores Beginning state of Assembly and Grill is zero units Planned ending state of Assembly and Grill is zero units © Dale R. Geiger

S’mores © Dale R. Geiger Chocolate squares Grill Beg 30  Purchase End Beg 0 Cook End 0 Assembly Beg 0 Assemble End 0 Graham crackers Beg 6  Purchase End Marshmallows Beg 5  Purchase End Pantry

S’mores © Dale R. Geiger Chocolate squares Beg 30  Purchase End Graham crackers Beg 6  Purchase End Marshmallows Beg 5  Purchase End Pantry

S’mores © Dale R. Geiger Chocolate squares Grill Beg 30  Purchase End Beg 0 Cook End 0 30  To table Assembly 30  To grill Graham crackers Beg 6  Purchase End Pantry 1 per unit

S’mores © Dale R. Geiger Chocolate squares Grill Beg 30  Purchase End Beg 0 Cook End 0 30  To table Assembly 30  To grill Marshmallows Beg 5  Purchase End 12 Pantry 2 per unit

S’mores © Dale R. Geiger Grill Beg 0 Cook End 0 30  To table Assembly 30  To grill Graham crackers Beg 6  Purchase End Marshmallows Beg 5  Purchase End 12 Pantry 4 per unit

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 Can you see applications for ARFORGEN? © Dale R. Geiger especially when you consider the lead times of purchasing and assembly!

But My Organization Doesn’t Have Inventory! What about staffing and training requirements? Ex. Air traffic controllers, Nuclear reactor operators Not having an adequate supply of trained workers can be costly Overtime, exhaustion, errors A “Just-in-Time” effort requires even more careful planning © Dale R. Geiger

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

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

Flexible Forecast Example Assumptions: Fixed Cost = $20 Variable Cost per Burger = $5 © Dale R. Geiger

Flexible Forecast Example Assumptions: Fixed Cost = $20 Variable Cost per Burger = $5 © Dale R. Geiger

Flexible Forecast Example Assumptions: Fixed Cost = $20 Variable Cost per Burger = $5 © Dale R. Geiger

Flexible Forecast Example Assumptions: Fixed Cost = $20 Variable Cost per Burger = $5 © Dale R. Geiger

Flexible Forecast Example with Revenue Assumptions: Price per Unit = $10 Fixed Cost = $20 Variable Cost per Unit = $5 © Dale R. Geiger

Flexible Forecast Example with Revenue Assumptions: Price per Unit = $10 Fixed Cost = $20 Variable Cost per Unit = $5 © Dale R. Geiger

Check on Learning How does total cost change as quantity produced increases? What is a flexible forecast? © Dale R. Geiger

Practical Exercise © Dale R. Geiger

Practical Exercise © Dale R. Geiger