Inventory Level Planning

---

1. Overview
Inventory levels are managed by categorizing them into three types:

• Raw Materials (RM)
• Work In Progress (WIP)
• Finished Goods (FG)

---

2. Steps for Planning

• Step 1: Split inventories into the three categories.
• Step 2: Calculate Days on Hand (DOH) for each type using historical data.
• Step 3: Forecast costs of material and COGS (Cost of Goods Sold).
• Step 4: Estimate DOH for future periods based on trends.
• Step 5: Use formulas to calculate inventory levels.

---

3. Key Formulas

DOH calculations:
DOH RM = (Average Raw Mat. / Cost of Material) * 90
DOH WIP = (Average WIP / COGS) * 90
DOH FG = (Average FG / COGS) * 90

Inventory level calculations:
RM = Cost of Material * (90 / DOH)
WIP = COGS * (90 / DOH)
FG = COGS * (90 / DOH)


---

4. Example Data
| Inventory Type | Actual (Jun) | Actual (Jul) | Forecast (Sep) |
|-----------------|-----------------|-----------------|-----------------|
| Days on Hand - RM | 16.4 | 17.8 | 17.8 |
| Days on Hand - WIP | 17.0 | 17.8 | 17.6 |
| Days on Hand - FG | 17.4 | 17.8 | 17.6 |
| Cost of Material ($1000s) | 17,500 | 19,500 | 20,288 |
| COGS ($1000s) | 22,500 | 23,000 | 24,987 |

---

5. Conclusion
- Proper inventory planning ensures optimal stock levels.
- DOH values help maintain efficiency.
- Forecasting enables better material and cost management.