Calculate a Production Plan with the Inventory Chain Template Principles of Cost Analysis and Management

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

Terminal Learning Objective Action: Calculate a Production Plan with the Inventory Chain Template Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international Learners): Complete the Process Flow Conduct Backward Chaining Problems Plan Impact on Fix and Variable Cost

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

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

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?

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

The Input-Output Equation Inventory Beginning Input Output Ending Beginning + Input – Output = Ending

Material Requirements Planning Inventory Beginning Input Output Ending Inventory Beginning Input Output Ending Inventory Beginning Input Output Ending

LSA #1 Check on Learning Q1. How does a forecast differ from The Budget? A1. Q2. Where does the planning process begin? A2. Q1. How does a forecast differ from The Budget? A1. The Budget is a political process, a forecast is management tool. The forecast represents a standard for comparison to actual performance. Note: By definition The Budget and actual spending will not have significant differences. Q2. Where does the planning process begin? A2. It begins by estimating output

LSA #1 Summary During this lesson, we touched on forecasting and how it relates to Material Requirements and Planning.

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? planned end states starting points planned action

Backward Chaining Demonstration Freezer Freezer Refrigerator Refrigerator Grill Beg 30  Purchase 25 ----------- End20 Beg Purchase ----------- End Beg 10 Defrost 35 ----------- End 35 Beg Defrost ----------- End Beg 0 Cook 10 ----------- End 0 35  To frig  To frig 10 To table 10  To grill  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?

Bill of Materials (S’mores Example) 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

Bill of Materials (S’mores example) (Cont.) 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 Marshmallows Graham crackers Chocolate squares Pantry contains: 5 6 30 Planned ending: 12 20 10

Bill of Materials (S’mores example) (Cont.) Pantry Pantry Bill of Materials (S’mores example) (Cont.) Marshmallows Marshmallows Beg 5 Purchase 37 ----------- End 12 Beg 5 Purchase 37 ----------- End 12 30 Assembly Assembly Grill Grill 1 per unit Graham crackers Graham crackers Beg 0 Assemble 30 ----------- End 0 Beg 0 Assemble 30 ----------- End 0 Beg 0 Assemble 30 ----------- End 0 Beg 0 Assemble 30 ----------- End 0 Beg 0 Assemble 30 ----------- End 0 Beg 0 Cook 30 ----------- End 0 Beg 0 Cook ----------- End 0 Beg 6 Purchase 74 ----------- End 20 Beg 6 Purchase 74 ----------- End 20 2 per unit 30 To table  To table 30  To grill  To grill 60 4 per unit Chocolate squares Chocolate squares Beg 30 Purchase 100 ----------- End 10 Beg 30 Purchase 100 ----------- End 10 120

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? 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

LSA #2 Check on Learning Q1. How does the Bill of Materials affect the materials planning process? A1. Q2. What are the non-manufacturing applications of Materials Resource Planning? A2. Q1. How does the Bill of Materials affect the materials planning process? A1. Each material used in assembling the product requires a separate t-account for tracking. Beginning inventories, planned outputs, and desired ending inventories are used to calculate required inputs. Q2. What are the non-manufacturing applications of Materials Resource Planning? A2. Staffing, training, and equipping combat units is essentially an application of MRP.

LSA #2 Summary In this lesson, we determined the difference between “planned assumptions vs. known facts”. We discussed an in-depth example (s’mores) and stated some real-world complexities.

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

Flexible Forecast Example Assumptions: Fixed Cost = $20 Variable Cost per Burger = $5 Burgers Cooked 8 10 12 Var. Cost 40 50 60 Fixed Cost 20 Total Cost 70 80 Burgers Cooked 8 10 12 Var. Cost 40 50 Fixed Cost 20 Total Cost 60 70 Burgers Cooked 8 10 12 Var. Cost Fixed Cost Total Cost Burgers Cooked 8 10 12 Var. Cost 50 Fixed Cost 20 Total Cost 70

Flexible Forecast Example with Revenue Assumptions: Price per Unit = $10 Fixed Cost = $20 Variable Cost per Unit = $5 Burgers Sold 8 10 12 Revenue 80 100 120 Var. Cost 40 50 60 Fixed Cost 20 Profit 30 Burgers Sold 8 10 12 Revenue Var. Cost Fixed Cost Profit

LSA #3 Check on Learning Q1. Can planning have financial consequences? Q2. What is a flexible forecast? A2. Q1. Can planning have financial consequences? A1. Yes / How? Q2. What is a flexible forecast? A2. Uses same assumptions for fixed and variable costs per unit.

LSA #3 Summary During this lesson, we discussed Planning’s Impact on Cost, and how the flexible forecast works when determining fixed cost vs. variable cost. Show Slide #26: LSA #3 Summary Facilitator’s Note: Re-Cap- During this lesson, we discussed Planning’s Impact on Cost, and how the flexible forecast works when determining fixed cost vs. variable cost.

Practical Exercise / Review

TLO Summary Action: Calculate a Production Plan with the Inventory Chain Template Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international Learners): Complete the Process Flow Conduct Backward Chaining Problems Plan Impact on Fix and Variable Cost