[SOUND] Hi, welcome back. In this video, we start talking about production and inventory budget. Look at where we are in the framework here. Before thinking about production, we analyze the inventory of finished goods. Why? Because the company may or should have a policy for finished goods inventory. And this policy impacts the production. It may look simple in terms of starting and ending inventory. However, there are issues to be considered, let's go through them. For example, if the company applies a just in time model in the production, then the inventory level would be low. In contrast, if the company applies production planning, then inventory level would probably be higher. Or if managers define a minimum service level to serve customers such as the delivery time then eventually what have to be higher. Analyze inventory historical data in relation to quality of information. Bad quality information demands for a higher inventory. Check for a new product launches or products substitution. Inventory level should be defined based on product life cycle. Check for sales seasonality, the company will have to make to inventory if production capacity can not be increased above the limit. Remember also that a high finished good inventory will demand for more working capital. Managers may decide for a high level, they should be aware of debt. The aspects we just discussed should be assessed to support ending finished goods inventory, analyze each of them, and verify if adjustments in the inventory should be done for every period of the budget. For example, on a quarterly basis you may have to adjust inventory level due to the plan of actions for the next budget period. Remember, every budget period may have changes. Look for them. Talk to people. The factors that may demand for inventory adjustment maybe for example, seasonality, product substitution, or a change in the service level. Look at this example here. We can see here that the inventory level is adjusted according to the changes in policies. And the factors to adjust are, as I said, seasonality, product substitution schedule, and change in service level. Other factors could be relevant, for sure. We need to assess which ones should be applied. Remember again, budgeting is about assumptions. Well, think about a company portfolio. If it has too many products, it may be time consuming to do it for every product line. Here between us, imagine doing it for every single product. And let's not forget, it may be hard to track an accurate record of inventory. If this is the case, maybe it wouldn't be worth to develop a drill down inventory for each single product. Consider instead aggregating in product lines, business units or in territories. Well, having the end in finished goods inventory budget, we can think about production inventory. Read the materials, stay tuned and see you soon. [SOUND]