1. Calculate a Production Plan with the Inventory Chain Template
Intermediate Cost Analysis
and Management

2. 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

3. Terminal Learning Objective
Action: 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

4. 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

5. 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

6. 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?

7. 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

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

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

10. 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. By definition The Budget and actual spending will not have significant differences.
Q2. Where does the planning process begin?
A1. It begins by estimating output

11. LSA #1 Summary
During this lesson, we discussed planning methods, backwards chaining along with the input / output methods.

12. 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

13. Backward Chaining Demonstration
Freezer
Refrigerator
Grill
Beg
Purchase
End
Beg
Defrost
End
Beg 0
Cook 10
End 0
 To frig
10 To table
 To grill

14. Backward Chaining Demonstration (Cont.)
Freezer
Refrigerator
Grill
Beg
Purchase
End
Beg 10
Defrost 35
End 35
Beg 0
Cook 10
End 0
 To frig
10 To table
10  To grill

15. Backward Chaining Demonstration (Cont.)
Freezer
Refrigerator
Grill
Beg 30
Purchase 25
End 20
Beg 10
Defrost 35
End 35
Beg 0
Cook 10
End 0
35  To frig
10 To table
10  To grill

16. 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?

17. 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

18. S’mores (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

19. S’mores (Cont.) Pantry Assembly Grill Beg 0 Assemble ----------- End 0
Marshmallows
Beg 5
Purchase 37
End 12 30
Assembly
Grill
Graham crackers
Beg 0
Assemble
End 0
Beg 0
Cook
End 0
Beg 6
Purchase 74
End 20
 To table
 To grill 60
Chocolate squares
Beg 30
Purchase 100
End 10
120

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

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

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

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

24. 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!

25. 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

26. 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.

27. LSA #2 Summary
During this lesson, we conducted a demonstration problem complete with a Bill of Materials, planning assumptions, and the known facts.

28. 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

29. Flexible Forecast Example
Assumptions:
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked 8 10 12
Var. Cost
Fixed Cost
Total Cost

30. Flexible Forecast Example (Cont.)
Assumptions:
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked 8 10 12
Var. Cost 50
Fixed Cost 20
Total Cost 70

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

32. Flexible Forecast Example (Cont.)
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

33. Flexible Forecast Example with Revenue
Assumptions:
Price per Unit = $10
Fixed Cost = $20
Variable Cost per Unit = $5
Burgers Sold 8 10 12
Revenue
Var. Cost
Fixed Cost
Profit

34. Flexible Forecast Example with Revenue (Cont.)
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

35. LSA #3 Check on Learning
Q1. How does total cost change as quantity produced increases? A1. Q2. What is a flexible forecast? A2.
Q1. How does total cost change as quantity produced increases?
A1. Total costs will increase as quantity produced increases due to increase in total variable cost.
Q2. What is a flexible forecast?
A2. A flexible forecast is a plan that considers total cost (and revenue and profit, if applicable) at various levels of production using the same assumptions about costs and selling price.

36. Practical Exercise

37. Planning/Flexible Forecasting Spreadsheet
Enter basic cost information and various production levels to calculate the flexible forecast

38. Planning/Flexible Forecasting Spreadsheet (Cont.)
Enter Data in the Bill of Materials tab to calculate Production and Materials Purchase Plan

39. Practical Exercise

40. TLO Summary
Action: 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