Simtech A*Star Optimising Inventory
A photo with our mentor, Dr Koh Niak Wu
A photo with one of the staff in SIMTech, addressed as Mr Ram
This course has been an interesting
one. I have learnt much from the entire attachment, such as understanding what
the supply chain, cash flow, inventory management and time value of money are
all about. In addition to research, we had to do a cash flow forecast for a
company. At the end of the entire project, our mentor gave us one last task to complete.
A cash flow problem was given to us, and we had to use a software known as the
excel solver to determine the exact values for the variables (given), so that
the revenue is maximised.
Content/knowledge skills learnt
1) Learning about the supply chain has made me understand the
difficulties and considerations that need to be taken to produce a product. It
has allowed me to see that there many activities and administration details
that have to be carried out to ensure that a product is successfully delivered
to the customer. Consumers are always complaining about not being able to get
the specific design that they are looking for, and about the slow transport of
goods. I was also one of these consumers. However, after learning more about
the supply chain, I now understand how hard it is to satisfy the individual
needs of each customer, and to ensure that products arrive on time.
2) I have learnt how to construct a simple inventory cash flow
forecast, which is used to predict the amount of inventory needed by a company.
This was done by estimating the demand of a product to prevent shortage or
surplus of goods, which would lower the profit of the company.
I now understand the difficulties and obstacles faced, and the numerous
considerations that a firm needs to make in order to ensure its survival and
profitability, through the creation of a cash flow forecast.
3) By doing the cash flow forecast, I am now able to read and
understand the financial statements of companies, which I did not understand
before, and would not have bothered to understand if not for this attachment.
Through this entire project, I now
understand the basic concepts that need to be kept in mind to ensure that a
company has an adequate amount of inventory in its hand to satisfy a consumer’s
needs. I am also able to understand how complex and tricky it is to a business.
aspects of your learning
Doing the cash
difficulty in making a cash flow forecast lies in the estimated values of
demand.Estimating the value of demand is
complicated, as it is hard to determine how the tastes of consumers will change
in the future, in this fast-paced society. Estimating these values was really a
challenge to me, as I wanted to make my values seem as realistic and possible.
Doing a forecast is really not an easy
task. Even in this hypothetical situation, it took a long time for me to estimate
the demands of the consumers. It must be really stressful and tough to
construct a cash flow forecast that is to be used by a real company for its
There were many terms that seemed alien
to me, such as accounts payable, accounts receivable and depreciation. Accounts
payable and accounts receivable refers to the amount of money owed to a company
and to be received from others respectively. Accounts payable are taken as
positive cash flow (This money is seen to be “given” to the company, since the
company has not officially paid for the goods), and accounts receivable are
taken as negative cash flow (This money is seen to be “given” away to the
customer, as the company has yet to collect payment.)
Depreciation is an expense that is
recorded as a tangible asset over its useful lifespan. If a machine costs $1000
and is expected to be useful for 5 years, amount of depreciation per year is
In the income statement (reports the
earnings/costs of a company), depreciation is subtracted.
While the value of depreciation is
added back into the cash flow statement (a statement that lists all cash flows
within a period). This is due to the fact that the cash flow statement only
lists down the movement of cash at that point where the cash is received or
expended. The cash flow statement does not account for time. This means that
the total cost of the machinery has already been deducted at the moment of
purchase. Deducting depreciations will
only result in a double deduction.
Learning about the
time value of money
Learning the concept and equation for
the time value of money will really be helpful in the future. Through my
research, I learnt how to calculate the time value of money. It is interesting
to see how the value of money would decrease as years pass by. I understood
that putting your money in an investment allows your money to grow, but it has
never cross my mind that a specific sum of money would be worth lesser in the
future than it is worth now due to the investment. It has always occurred to me
that the value of money decreases over the years due to the increase in incomes
1 takeaway for life
I experienced how it is like to work in
a company. When you are given a task to do, you have to complete it by
yourself. Determination and discipline is essential for one to complete a
project before or by the date due, as one will not be reminded by others to
complete the project. It is all up to one to allocate and divide one’s time to
ensure that all projects assigned can be completed by the date due. One must
also constantly think of new ideas and questions to broaden one’s knowledge,
especially when doing research, so that one will always have things to do and
will be able to learn as much as one can. This will make the task easier. Doing
more research now would also mean that less research would be needed in a
subsequent similar project.
In addition, it is important to be
vocal. No one would have the time or energy to monitor your progress
continuously to check if you have difficulties in any areas. Information and
explanations will have to be sourced on your own through research, as you will
not be spoon-fed.
This experience has highlighted the
importance of being independent, to be able to decide, and of having thirst for
knowledge. Through my mentor, I understood how important it is to love your
work. One will be able to work and learn to his maximum only when one truly
loves his work.
definitions and explanation on some terms
The supply chain is a system which
indicates the movement of a product or a kind of service from the supplier to
the customers. Aside from products and services, information concerning the
fluctuations in the market and production capabilities between the corporations
and companies, and cash (From customer to supplier) also flows through the
This includes all the logistics
and administration that occurs during the purchase/sale of a product.
Reseller à A person who purchases with the
intention of reselling instead of consuming the product.
Retailer à A retailer sells goods and
merchandises from a fixed location. Retail establishments are also known
as shops and stores.
dark arrows = Flow of information and finances.
Thick light arrows = Flow of products
Flow of information must be quick to
allow accurate production of goods and services.
1) The retailer would have to inform the supplier to supply him
with more goods if there is a shortage of stock. The supplier would then
contact the manufacturer, who in turn would contact their suppliers.
2) The retailer informs their supplier who in turn informs the
manufacturer to delay the manufacturing and purchase of materials for a
particular product if the demand of that product falls.
Cash flow refers to the movement of
cash into and out of a business, project or a company. Cash flow is used to
determine a company’s welfare, such as the liquidity (extent to which a
person or firm is able to repay its debts when it is due) of a company.
Positive cash flow indicates that the
company is receiving money.
Negative cash flow indicates an outflow
of cash from the company.
It is important to note that cash flow
is not profit.
A negative cash flow does not indicate
that the company is not profitable in the long run.
Negative cash flow can occur when a
company is expanding. Huge funds needed to purchase long-term and short-term
assets such as machineries can cause a temporary negative cash flow. The
company is basically profitable, but faces a substantial outflow of cash due to
procurement of assets.
Having positive cash flow does not
indicate that a company is profitable.
The cash flow of a company can be
positive if it receives a lot of cash from investors. On the other hand, the
company could be trading at a loss, making them unprofitable in the long run.
Net cash flow of a company over a
period = Change in cash balance over that same period.
There are 3 types of cash flow.
1) Operational cash flow
a. Movement of cash due to a company’s internal activities,
such as cash earnings or working capital (Current assets – current liabilities)
b. This figure must remain net positive in the long run for the
company to remain solvent (ability to repay all liabilities. Value of a
company’s asset is greater than the value of liabilities.)
2) Investment cash flow
a. Cash received from the sale of long-life assets or cash used
on capital expenditure, such as investments, long-life assets, or acquisitions.
3) Financing cash flow
a. Inflow of cash from debt and equity issued, or outflow of
cash for dividends, repurchasing of shares or repayments of debts.
Supply chain management basically
involves the considerations of these questions:
- What point and what quantity
should an order be placed to the supplier?
- When should an order be placed to
the supplier to ensure that stocks come on time?
- What happens if the supplies don’t
come on time? How long can the current inventory allow the production to
continue without disruption? How much inventory should be hold to ensure
that stock will not run out before the supplies arrive?
- What if 2 materials are ordered
from different suppliers, and 1 is delayed? )
Time Value of
The time value of money encompasses the
idea that the money available now will be worth more than that amount in the
future due to its potential earning capability. This is also known as present
Formula is given as: Present value =
Formula is obtained by reversing the
equation to determine compound interest.
For compound interest: Assuming that
interest rate is 3%, and amount invested is $10,000.
End of 1st year: $10,000 *
End of 2nd year: $10,000 *
End of nth year: $10,000 *
Formula: Future value = Present value *
Hence, by reworking the formula for
compound interest, the formula for present discounted value can be obtained.
Youtube video for Product Mix Example