Calculate a Production Plan with
the Inventory Chain Template
Intermediate Cost Analysis
and Management
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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
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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
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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
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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
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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?
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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
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The Input-Output Equation
Inventory
Beginning
Input
Output
Ending
Beginning + Input – Output = Ending
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Material Requirements Planning
Inventory
Beginning
Input
Ending
Output
Inventory
Beginning
Input
Ending
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Output
Inventory
Beginning
Input
Output
Ending
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Learning Check
• How does a forecast differ from The Budget?
• Where does the planning process begin?
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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
planned end states
• 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?
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starting points
planned action
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Backward Chaining Demonstration
Freezer
Beg
Purchase
----------End
Refrigerator
Beg
 To frig
Defrost
Grill
Beg 0
 To grill
----------End
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Cook 10
10 To table
----------End 0
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Backward Chaining Demonstration
Freezer
Beg
Purchase
----------End
Refrigerator
Beg 10
 To frig
Defrost 35
Grill
Beg 0
10  To grill
----------End 35
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Cook 10
10 To table
----------End 0
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Backward Chaining Demonstration
Freezer
Beg 30
Purchase 25
----------End 20
Refrigerator
Beg 10
35  To frig
Defrost 35
Grill
Beg 0
10  To grill
----------End 35
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Cook 10
10 To table
----------End 0
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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?
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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
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S’mores
• Planned production is 30 s’mores
Marshmallows
Graham crackers
Chocolate squares
Pantry contains:
5
6
30
Planned ending:
12
20
10
• Beginning state of Assembly and Grill is zero
units
• Planned ending state of Assembly
and Grill is zero units
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Pantry
Marshmallows
Beg 5
Purchase 37
S’mores
30
----------End 12
Assembly
Graham crackers
Beg 0
Grill
Beg 0
Beg 6
Purchase 74
60
----------End 20
Assemble
----------End 0
 To grill
Cook
----------End 0
 To table
Chocolate squares
Beg 30
Purchase 100
----------End 10
120
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Pantry
Marshmallows
Beg 5
Purchase 37
S’mores
30
----------End 12
Assembly
Graham crackers
Beg 0
Grill
Beg 0
Beg 6
Purchase 74
60
Assemble 30
30  To grill
----------End 0
----------End 20
Cook 30
30 To table
----------End 0
Chocolate squares
Beg 30
Purchase 100
----------End 10
120
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Pantry
Marshmallows
Beg 5
Purchase 37
S’mores
30
----------End 12
Assembly
Graham crackers
Beg 0
Grill
Beg 0
Beg 6
Purchase 74
60
Assemble 30
30  To grill
----------End 0
----------End 20
Cook 30
30 To table
----------End 0
Chocolate squares
Beg 30
Purchase 100
----------End 10
120
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Pantry
Marshmallows
Beg 5
Purchase 37
S’mores
30
----------End 12
Assembly
Graham crackers
Beg 0
Grill
Beg 0
Beg 6
Purchase 74
2 per
60 unit
Assemble 30
30  To grill
----------End 0
----------End 20
Cook 30
30 To table
----------End 0
Chocolate squares
Beg 30
Purchase 100
----------End 10
120
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Pantry
Marshmallows
Beg 5
Purchase 37
S’mores
30
----------End 12
Assembly
Graham crackers
Beg 0
Grill
Beg 0
Beg 6
Purchase 74
60
Assemble 30
30  To grill
----------End 0
----------End 20
Cook 30
30 To table
----------End 0
Chocolate squares
Beg 30
Purchase 100
----------End 10
120
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Real World Complexities
• These simple concepts are applied through
materials requirement planning (MRP)
systems in much more complex situations
• Consider the complexities of:
especially when
• Automobile manufacturing
• Computer assembly
• Making and launching a space shuttle
you consider the
lead times of
purchasing and
assembly!
• Can you see applications for ARFORGEN?
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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
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Learning Check
• How does the Bill of Materials affect the
materials planning process?
• What are the non-manufacturing applications
of Materials Resource Planning?
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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
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Flexible Forecast Example
• Assumptions:
•
•
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked
Var. Cost
Fixed Cost
Total Cost
8
10
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27
Flexible Forecast Example
• Assumptions:
•
•
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked
Var. Cost
Fixed Cost
Total Cost
8
10
50
20
70
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Flexible Forecast Example
• Assumptions:
•
•
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked
Var. Cost
Fixed Cost
Total Cost
8
40
20
60
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10
50
20
70
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Flexible Forecast Example
• Assumptions:
•
•
Fixed Cost = $20
Variable Cost per Burger = $5
Burgers Cooked
Var. Cost
Fixed Cost
Total Cost
8
40
20
60
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10
50
20
70
12
60
20
80
30
Flexible Forecast Example with
Revenue
• Assumptions:
•
•
•
Price per Unit = $10
Fixed Cost = $20
Variable Cost per Unit = $5
Burgers Sold
Revenue
Var. Cost
8
10
12
Fixed Cost
Profit
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Flexible Forecast Example with
Revenue
• Assumptions:
•
•
•
Price per Unit = $10
Fixed Cost = $20
Variable Cost per Unit = $5
Burgers Sold
Revenue
Var. Cost
8
80
40
10
100
50
12
120
60
Fixed Cost
Profit
20
20
20
30
20
40
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Learning Check
• How does total cost change as quantity
produced increases?
• What is a flexible forecast?
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Practical Exercise
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Planning/Flexible Forecasting
Spreadsheet
Enter basic cost information and
various production levels to
calculate the flexible forecast
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Planning/Flexible Forecasting
Spreadsheet
Enter Data in the Bill of Materials tab to calculate
Production and Materials Purchase Plan
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Practical Exercise
• Complete Practical Exercise
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