2.

Planning/
Inventory
Ch 2
(week 3)

ADE Business Communication Page 1

Spring 2023
Objectives – Be able to understand and apply the
following concepts

2.1 Importance of S&OP meetings

2.2 Key concepts behind demand forecasting
2.3 Inventory Management
2.5 What is a BOM, the importance of it, how it is
shaped, what is it used for
Four Categories

1. Plan
2. Source
3. Make
4. Deliver
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 PLAN
Demand Forecasting
Product Pricing
Inventory
• Management

DELIVER SOURCE
Order Returns
Procurement
Managemenet
Credit &
Deivery Scheduling
Collections
Return Processing

MAKE
Product Design
Production Scheduling
Facility Management

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1) PLAN • a) Demand forecasting

• b) Cost Structure and Pricing

• c) Inventory Management/ EOQ

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a) Demand forecasting

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 S&OP definition (Sales & Operations Planning)

- Function of setting the

overall level of
manufacturing output
and other activities

- to best satisfy the

current planned levels of
sales,

- while meeting business

objectives of profitability,
productivity, competitive
customer lead times, etc

- as expressed in the Who participates:

Sales, Marketing (flexible), Operations, Manufacturing,
business plan Puchases, Cost Controller, Management, R&F (flexible)

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 S&OP meetings:
Planning – Demand/
Production
Integrated Business plan & Multi-Functional Operations lead by S&OP
principles (Kimbely Clack video – seen in Operations) :Video 1 - S&OP
Overview – YouTube /
https://www.youtube.com/watch?v=5SPUUpyqGFk

S&OP Dashboard: https://www.youtube.com/watch?v=Nz0UHvTk4dw

Overall S&OP : What is Sales & Operations Planning? - By Implement

Consulting Group – YouTube

Answer:
1. What would you need to know (from the
HP reading) to find out if the inventory´s
level is the correct one? List the reasons
and explain them.

2. Can you define who is responsible for

the lack of products in Europe to meet
their sales´ goal? Justify your answer.

2/15/2023
 b) Relationship of cost structure to Pricing

Is it better to do price promotions during

peak periods to increase revenue or during
low periods?

Create more Create more

demand in peak demand in low
season season
Flexibility High Low
Production capacity Easy to increase No spare capacity
Cost of carrying inventory High Low- High

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 c) Inventory Management- inventory position

• Cycle Inventory- inventory required to

meet needs between placing order
periods

• EOQ – the most cost effective amount

to purchase at a time

• Seasonal Inventory – the one pre-

produced in anticipation of known
peaks & limited capacity
Safety Stock
• Safety Inventory – Buffer against
variability
RoP at 400 not ok, as
• Re order point - That point at which lead time is too long
time a stock replenishment requisition
Lead time of 8 weeks
would be submitted to maintain the
predetermined stockage objective.

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 • ROL- Re order level
• ROP- Re-order point
• LT- Lead time
• SO- Stock on order
• AC – average consumption
c) Key concepts behind • Del- Delivery
•
inventory DOS- Days of stock or
• IOH- Inventory on hand
• Preq or PO- Purchases requisition or PO- Purch order
• MOQ- minimum order quantity
• ITO- Inventory Turn Over
• Delivered order quantity
• EOQ- economic order quantity
• Consumption
• Lot size

2/15/2023
INVENTORY and inventory in the chain
An inventory system
• is the set of policies and controls that monitor levels
of inventory and determine what levels should be
maintained, when stock should be replenished, and
how large orders should be.

Inventory Value
• It can be individually valued by cost or current
market value, and collectively by FIFO (First in,
first out), LIFO (Last in, first out) or other
techniques

• Inventory is generally the least liquid item listed

by a firm in the current asset account of its
balance sheet.

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 Safety Stock

Average Safety Stock 150

Safety stock = (max daily sale per unit * max LT
in days) – (average daily sales per unit * average
LT)

Max weekly demand: 200 per week 2 * 200 = 400

average LT: 2 weeks 2 * 125 = 250
average weekly demand 125 450-250 = 150

2/15/2023
 INVENTORY EXERCISE
Re-order point- when inventory hit the 400´s (when <500)
Lead time- 2 weeks
OQ - in lots of 800 units
Aggregated
DeliveredO Consumption consumption
rder per period (1 (in between Periods before Aggregated
Re- order Level Quantity week) deliveries) IOH a new delivery Periods
End of period 800 0 0 800 1 1
50 50 750 2 2

Exercise 2.1 50
70
70
100
170
240
700
630
560
3
4
5
3
4
5
RO 70 310 490 6 6
1w 70 380 420 7 7 380

•
2w Delivery 800 50 50 1170 1 8
Calculate the appropriate inventory levels 50 100 1120 2 9
70 170 1050 3 10
according to the parameters of: 70 240 980 4 11
70 310 910 5 12
• Order quantity 70 380 840 6 13
80 460 760 7 14
• Consumption or demand 80 540 680 8 15
120 660 560 9 16
• Lead time 1w
RO 120
120
780
900
440
320
10
11
17
18 900
• Re-order point 2w Delivery 800 120
170
120
290
1000
830
1
2
19
20
• Safety Stock RO
170
200
460
660
660
460
3
4
21
22
1w 200 860 260 5 23 860
2w Delivery 800 200 200 860 1 24
200 400 660 2 25
RO 170 570 490 3 26
1w 170 740 320 4 27 740
2w Delivery 800 200 200 920 1 28
200 400 720 2 29
200 600 520 3 30
RO 200 800 320 4 31
1w 170 970 150 5 32 970
2w Delivery 800 170 170 780 1 33
120 290 660 2 34
120 410 540 3 35
RO 120 530 420 4 36
120 650 300 5 37 650

4800 659,7
Inventory Graph

Let´s analyze
the data…

Conclusions:

2/15/2023
BILL OF MATERIALS BOM ….. From Operations
A BOM is an extensive list of raw materials, components, and assemblies
required to construct, manufacture or repair a product or service.

Understanding Bills of Materials (BOM)

The different types of bills of materials depend on the projected use and business
needs. A manufacturing BOM is essential in designing enterprise resource
planning (ERP) systems and materials requirement planning (MRP).

A bill of materials explosion displays an assembly at the highest level broken

down into its individual components and parts at the lowest level
Example from a Bakery Company.
Basic level - Usage & materials used as per BOM´s
BOM INGREDIENTS LIST FOR 1000KG OF PRODUCT (1 TON)
Bill of Materials

Choc/Strawberr
White Bread- Whole Grain White Br No Hamburger
Brownie P y Submarine Toasted W Br Hot Dog Buns
Loaf Bread Loaf Preserv Loaf Buns
Cake

1lt = 1 kg 1000 1000 1000 1000 1001 1000 1000 1000

Water lts 600 550 680 697 635 650 415 487
White flour kg 150 130 303 50 335 300 480 455
Whole grainflour kg 0 240 21 30
Salt kg 5 3 3 4 4 15 5
Sugar kg 90 120 2 3 10 45 20
Yeast kg 2 3 1 1
Milk lts 40
Oil lts 30 40 3 3 5 4 40 30
HFCS kg 30 50 6
Preserv kg 1 1 1 1 1 5 3
Citric Acid kg 2 2
Vitamin mix kg 2
Cream lts 30 40
Fruit jam kg 0 35
Cocoa kg 20 32
SALES Forecast (TH individual
packages) 10.000 9.000 45.000 20.000 10.000 40.000 16.000 22.000 172.000
units/ Pack 2 1 1 1 1 1 6 4
Weight of indiv.
product15/02/2023 grms 0,09 0,10 0,42 0,45 0,40 0,38 0,0617 0,08
SALES in Tons 1.800 900 18.900 9.000 4.000 15.200 5.280 6.600 61.680
 Most Basic Need- Volume as per BOM´s
and production forecast (in this case, sales and
production volume are pretty much the same)
Choc/Strawberr
White Bread- Whole Grain White Br No Hamburger
Brownie P y Submarine Toasted W Br Hot Dog Buns
Loaf Bread Loaf Preserv Loaf Buns
Cake

1lt = 1 kg 1000 1000 1000 1000 1001 1000 1000 1000

Base sales and production Budget- Full year
SALES Forecast (Kunits in pack) 10.000 9.000 45.000 20.000 10.000 40.000 16.000 22.000 172.000
RMS Sales & Productionin TONS 1.800 900 18.900 9.000 4.000 15.200 5.280 6.600 61.680
Volume unit
1234567 Water lts 1.080.000 495.000 12.852.000 6.273.000 2.540.000 9.880.000 2.191.200 3.214.200 38.525.400
2345678 White flour kg 270.000 117.000 5.726.700 450.000 1.340.000 4.560.000 2.534.400 3.003.000 18.001.100
3456789 Whole grainflour kg - - - 2.160.000 84.000 456.000 - - 2.700.000
4567890 Salt kg 9.000 - 56.700 27.000 16.000 60.800 79.200 33.000 281.700
5678901 Sugar kg 162.000 108.000 37.800 27.000 - 152.000 237.600 132.000 856.400
6789012 Yeast kg - - 37.800 27.000 4.000 15.200 - - 84.000
7899723 Milk lts 72.000 - - - - - - - 72.000
9010284 Oil lts 54.000 36.000 56.700 27.000 20.000 60.800 211.200 198.000 663.700
10120845 HFCS kg 54.000 45.000 113.400 - - - - - 212.400
11231406 Preserv kg 1.800 900 18.900 9.000 - 15.200 26.400 19.800 92.000
12341967 Citric Acid kg 3.600 1.800 - - - - - - 5.400
13452528 Vitamin mix kg 3.600 - - - - - - - 3.600
14563089 Cream lts 54.000 36.000 - - - - - - 90.000
15673650 Fruit jam kg - 31.500 - - - - - - 31.500
16784211 Cocoa kg 36.000 28.800 - - - - - - 64.800
15/02/2023
Total weight in kg kg 1.800.000 900.000 18.900.000 9.000.000 4.004.000 15.200.000 5.280.000 18 6.600.000 61.684.000
2.2 Exercise : What if?? – get into Excel file in e-study - either class or home assignment

a) Implications on either inventories or suppliers´ commitments if:

1. What if the Brownie business is sold?

2. What if the White bread is been reformulated and the salt is taken out?
3. What if the Whole Grain bread is also been reformulated and the White flour is replaced
by the Whole Grain flour?
4. What if the volume of White bread decrease by 20% and it is been taken by the Whole
Grain flour one?

b) Others:

1. How many bags are needed for the hot dogs´ buns?
2. How many drums of jam are needed assuming a container (drum) size of 200kg.
3. If the flour is delivered in tank trucks of 22 Tons, how many trucks are needed?
– And if SKU´s 3, 4, 5 & 6 are produced in a different production site.
• How many trucks are needed in each production site?
• And if there is a seasonality for the other SKU´s (1,2,7 & 8) of 60% sales in June-Sept and
40% the rest of the year?
– How many trucks will be needed per month in the production site manufacturing these
products.
NEXT WEEK

• Read chapter 2 & 3- Quiz

• Load assignment (if not covered in
class)
• Review information under BOM tables
• Read the role play information
CONCLUSION:

What have you learned?