INVENTORY PURPOSE Total control though desirable, It is neither feasible nor effective Selective control needed ADVANTAGES Better

control at reduced cost Major portion controlled Delegation / computerisation Yields results Time freed for management Assets freed for alternative use CRITERION / BASIS Period usage value Unit price Year - end figures Criticality of item Source & Origin Frequencies of usage Availability

ANALYSIS

TYPE OF ANALYSIS ABC HML (High Medium Low ) XYZ (Investment in inventory) VED (Vital Essential Desirable ) GOLF (Govt. Ordinary, Local & Foreign) FSN (Fast Slow Non-moving) SDE ( Scarce Difficult Easy)

INVENTORY
List all items with unit prices and periodic consumption Find periodic usage value of each item Arrange the list in descending order of usage value and calculate cumulative usage value and its %age to total periodic value of the entire list Divide (Basis CUV) Approx. % age of items covered Either 80-15-5 5-15-80 Or 85-10-5 5-10-85 Or 75-15-10 10-15-75 Or any other suitable way Decide control strategies for A cat, B cat & C cat items Consider ALL items together in inventory in this analysis

ABC ANALYSIS

EXAMPLE : Calculate annual usage & rank Pt No Unit cost 1 2 3 4 5 6 7 8 9 10 1000 10 100 1500 200 500 110 6000 100 1300 Usage 6 25 2 2 2 1 20 4 4 1 Ann Usage Rs 6000 250 200 3000 400 500 2200 24000 400 1300 Rank 2 9 10 3 7 6 4 1 8 5

INVENTORY Part No Ann usage Rank Cum usage

ABC ANALYSIS

Cum% usage
62.75 78.43 86.27 92.03 95.42 96.73 97.78 98.82 99.48 100.00

Cum % Items
10 20 30 40 50 60 70 80 90 100

Class

2 5 8 1 4 10 9 3 6 7

24000 6000 3000 2200 1300 500 400 400 250 200

1 2 3 4 5 6 7 8 9 10

24000 30000 33000 35200 36500 37000 37400 37800 38050 38250

A A B B B C C C C C

INVENTORY

ABC ANALYSIS ABC curve % value X % items 100

100 80 60 40 20 78

95 % 0f value 78:17:5 % of items 20:30:50

20
0 20 40

50
60 80

100
100

% of items

INVENTORY Strategy Control Ordering Procedure A cat Managers

ABC ANALYSIS B cat Operating level Lead time & EOQ C cat No specific Rate contract Blanket order

Meticulous Control on quantity

Delivery
Priority

Staggered & When needed

Top priority

Advance Dely. schedule

Selective priority

Bulk buy

Buffer stock
Discounts Stock taking Value analysis

No safety stock
Weighted decisions High frequency Detailed

Low
Weighted Decision Perpetual Selective

2 bin or similar
Qty discounts Periodical No VA

INVENTORY

HML ANALYSIS

Unit Price is the basis for classification List in descending order of unit price Classification cut-off as decided by the management e.g. H = unit price above Rs 500 High M = unit price < Rs 500 but > Rs 50 Medium L = unit price < Rs 50 Low INVENTORY

Advantages Security Control on issue Strategy for sock taking Buying policies and decision level

GOLF ANALYSIS Basis Source G Govt IRE, MMTC, STC etc O Non Govt suppliers L Local suppliers F Foreign suppliers, Imported Items G Long procedures, rules & regulations, licenses, permits, Long lead time F LOC, Shipping, customs, Exchange rates, FERA, Long lead time

INVENTORY Vital V Essential E Desirable D Reasons

Criterion Criticality Non-availability hold-ups production Stock outs cost very high No significant effect on production. 50 10 10 20 10

VED ANALYSIS

No stock holds up the production Availability in the market and proc.lead time Long manufacturing lead time Standard or made to design Single or multiple source

Decide criteria List items

Allot weightages to each reason give points under each criteria multiply weightages with points List in descending order of total points Use cut-off to decide V, E & D Avail 10 0 0 3 0 2 MLT 10 1 5 6 2 3 Source 10 0 2 0 2 2 Std 20 2 0 0 0 1 Tot. 100 400 220 140 40 180 Cut-offs V - Above 200 E <200 & > 50 D - Below 50 Therefore VP&Q ER&T DS

Example Criteria Prod hold Wtg 50 Item / Points (Max 10) P 7 Q 3 R 1 S 0 T 2

INVENTORY

FSN ANALYSIS
<10 &>1 >10 & <30 Med Med S 1 or less 30 or more Low High N

Basis Frequency of transactions & Age of the inventory e.g.Trans / month 10 or more OR days item not moved 3 or less Frequency Age in days High Low F Action F - items reviewed regularly S - items stocks are watched for surplus N - items studied for disposal

INVENTORY XYZ ANALYSIS Basis Value of stock, investment in inventory Action Criteria Review X & Y X High inventory value Try to push X to Y category Z Low inventory value and Y to Z category Y In between
Combination of XYZ and FSN Class X Y Z F Control Moderate Liberate S Deplete Deplete N Dispose Quickly Dispose ASAP Dispose ASAP