Future Inventory Value Planning

Now, future inventory value planning as a specific chemical commodity value planning requirement reflecting the volatility of working capital and capital costs influenced by volatile raw material prices is described. 

R3 - Future inventory value planning inventory values are a crucial aspect in value planning on the one hand, inventory value leads to capital costs for the company. On the other hand, inventory value is capital employed influencing key value management indicators such as return on... 

In order to reflect these lead times, the concept of a timestamp is introduced. Timestamp is used in computer science documenting the system time when a certain event or transaction occurs e.g. for logging events (N.N. 2007). In the context of future inventory value planning, the time-stamp marks the period, when the first raw material has reached a certain stage in the value chain network included into a specific product. In the example illustrated in fig. 57, the raw material is processed in the same period to be converted into product 1. Therefore, all four value chain steps indexed from one to four occur in the same period and have the same time-stamp one. Conversion into product 2, however, requires additional time caused by production lead times, safety inventory and/or transportation time, that the steps indexed with five and six have a time stamp of two. The timestamp reflects that the inventory value of product 2 is not based on the raw material costs from the same period but based on the raw material costs from the previous period in order to reflect the lead time. Consequently, value chain indices and timestamps are defined for all steps and can cover multiple periods reflecting that raw materials in a global complex multi-stage value chain network can take several months, until they are sold as part of a finished product to the market. 

Basis for calculating capital costs on transit and local inventories are the planned product values. The model supports future inventory value planning based on the raw material price offers. Fig. 82 shows results of the inventory value planning. 

Focus on supply volume planning to fulfil given demand, reach a feasible plan and minimize supply costs also using subjective penalties instead of actual cost parameters from controlling future-oriented profit-maximization according to profit and loss statement and inventory value planning not covered so far... 

Value planning described in subchapter 5.3 consolidates all values in a consistent profit and loss statement view and maximizes global profit. In addition, value planning addresses the requirements of planning future inventory values across the value chain network. 

The planning objective is to plan global value chain volumes and values. Initially, the value planning model with the objective function to maximize global profit is presented. The objective function also includes a relaxation concept for hard constraints leading to potential plan infeasibility. The future-oriented inventory value planning concept based on volatile raw material prices is presented at the end of the subchapter. 

Future capital costs considered in the objective function rely on future capital values - in this scope future inventory values. The planning of future inventory values in all future periods and in all network locations is a complex task. As described in the requirements, future inventory value is determined by the future product values of the products on stock. These product values change, if the included material costs of the product change, which is regularly the case due to volatile raw material prices. The task now is to calculate the future inventory value throughout the value chain network and product steps considering the raw material price forecast for the planning horizon. The problem is illustrated in fig. 57. 

Future inventory planning approach to anticipate future inventory values in the value chain network based on future raw material price forecasts. 

The coverage shows that models rather focus on specific requirements areas and functions in value chain planning. It turns out that some requirements such as future inventory planning and process throughput smoothing are less investigated than others. 

Final material cost rates and product value rates are determined based on the indexed material cost and product value rates. Multiple indexed material cost and product value rates occur, if cyclic material flows exist in the value chain. In order to apply index-independent cost and value rates in the model for future inventory planning, the maximum value and cost rates are determined for all products, locations and periods across all value chain steps i. 

The product value rate for future inventory planning is equal to the product values at all transfer point locations. 

Finally, future inventory planning is integrated in the overall optimization process as preprocessing phase. Alternatively, it can be run independently before the optimization to ensure usage of the most recent future product values for calculating capital costs in the optimization. 

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