Costing by Excel

Dick Lam Jan 2010

Back to Basic

Course Rationale

Operational Efficiency &

Effectiveness

Model/Template

Principles

Detail + Logic => Flexibility

Course Outline

Day 1 - am• Underlying principles of MRP

• Forward-looking of inventory forecast

• BOM & Routing

• Takt time on labor requirement

• Exhibition of Excel Models

Day 2 (Template Construction)

• MRP Fine Tuning template

• Stock Aging Report

• ConclusionDay 1 – pm (Excel skill training)• Special Excel functions introduction

• User-defined functions introduction

• BOM & Routing worksheet model

• Simple MRP calculation

Sorry!

• I am not JIT (Just in time) expert

• I am a spreadsheet worker who is working on detail, building spreadsheet model, constructing formula, pulling data from “ERP” system and giving instruction

• I always argue with our IT for detail working – Excel, please

Disenchantment

• I am an accountant but,• I found that some concepts in accounting are

not applicable in inventory management– Inventory Turnover, Inventory Days– Inventory Forecast– Ratio analysis

• Before the above realization, I often got dissonance with our operation people until a day, I learnt Excel and their functions & programming

Realization

• Mindset of working in detail• All calculation must have workings• All workings must have evidence• All evidence must have its milieu• All milieu must have its assumptions and

objectives

Back to Basic

then

Build from Scratch

Basic Formula

• Opening + In – Out = Closing

• Opening + Purchase – Sold = Closing

• Purchase = Closing – Opening + Sold

• Closing = Summation of Units to be sold of future days covered by Target Inventory Days

Before doing anything

Let’s start the jigsaw puzzle

Example - II

Excel Library

• Inventory by weeks– stkweeks, wstkbal

• Inventory by days– stkdays, dstkbal

• How to install library?• Additional: dcdays, dcbal

Example - I

Target Inventory Days/Weeks

• In inventory perspective, it is the cushion to handle any fluctuation of future demand

• It asserts that inventory balance should be various on the future demand

• It is also the tolerance of cash being held up in terms of inventory

Another perspective

• By setting 3 weeks of target inventory weeks, you pull in the requirement inventory 3 weeks well in advance

• e.g., if you need to use RM-A in week 10 by 100 units, Week 11 by 200, Week 12 by 300, the order time is 5 weeks

• Refer to worksheet example

Condition for setting

• Magnitude of fluctuation

• Lead time

• Tolerance of cash hold up

Safety Stock Level

• How do you define it?– It is the estimated consumption of a certain

period of time to cater for any fluctuation of demand happen at any point of time

• Should it be based on past experience or future demand?

• Can we prove it?

What should be MRP?

• BOM Materials• But what should be included in BOM?

– All precious items– All items in pieces– All packing materials?– All consumables? (but what is consumables?)– All tools?– All needs to be measured!!

Critical to reduce Stock

• Short lead time by supplier• Equalize MOQ to SPQ • Minimize SPQ• More accurate forecast (!!)• Frequency of delivery• Lead time offered to your customers /

Width of frozen window

MRP Fine Tuning

• Purpose– Spot out the following problems

• Abnormal balance• Reveal Shortage to trigger pull-in• Reveal Excessive Stock to trigger push-out• Insufficiency of inventory balance

MRP Fine Tuning

• Assumption– 8 Weeks of Inventory to monitor– HK WH takes time to ship to PRC WH– Available Qty = WH Qty – Reserved Qty– Overdue P/O Qty not considered– 3 weeks of requirement as Safety Inventory

Level

MRP Fine Tuning

• Data to highlight– HK WH & PRC WH Qty < 0– Available Qty < 0– 1st week requirement consumes HK WH Qty– Weekend Qty < next week requirement– Excessive Qty

• Already excessive with additional P/O Qty• With P/O Qty, it is excessive

BOM & Routing

BOM

• For simplicity, we only focus on single level BOM

• We only concern about the quantity after normal scrap specified in BOM

• We assume the unit of measure of RM in BOM same as warehouse SKU

Materials Demand

• Using the demand forecast for the materials requirement

• Applying basic formula for the purchase of materialsPurchase = Closing – Opening + Sold

• This purchase forecast is on a weekly basis

Routing

• It is the flow of production

• It is based on workstations which specify the labor hours to complete every task of the assembly process

• It is related to Takt time in optimization

Routing - Problems

• Labor Cost / Man Hours

• Inefficiency

• Low Season / Fluctuation

Stock Aging Report

• Assume FIFO, first in first out for the incoming materials

• Categorize inventory in order to sort out the focus

• Focus on the irregular pattern of incoming transaction – it should be leaning to right

Special Excel functions

• Range Name• Operator: &, $• min, max• vlookup(key, range, column, true/false)• Match• Iferror(formula, value)• Index(range, row, column)• Indirect(cell.address)• sumif, sumproduct

Tips

• Index > vlookup• Remember the use of $• Great value of “&”• When using “indirect”, reference to the

original formula• Batch total & check sum• Refresh your memory

Conditional Formatting

Get Data from Database

• Indicate if certain condition is met to highlight

• It can be a compound formula• Not to have so many

color combination