VED analysis In addition to the intrinsic or market value of materials, which is
invested in the materials, there is sometimes a nuisance value to the materials. In ABC analysis, we have seen that annual consumption value;
quantity of materials consumed and unit cost plays a vital role. This is to say that ABC analysis deals with the annual
consumption value of the item due to their presence and not any other aspect such as the criticality of the material or the nuisance value. The nuisance Value is the cost associated with materials due to
their absence. Some of the materials are important by their absence. In case they are not available, the whole production system may
come to standstill and involve high cost of loss of production. The investment in these materials may be small but for non-
availability of the item the costs or losses the company going to involve will be very high. These are critical items, which are required in adequate quantity. The materials may be classified depending upon their criticality
that is on functional basis. The degree of criticality can be stated as whether the material is
vital to the process of production, or essential to the process of production or desirable for the process of production. This classification is known as VED analysis
In addition to the conventional ABC analysis, VED analysis also
plays an important role in materials management. VED ranking may be done on the basis of the shortage costs of
materials, which can be either quantified or qualitatively expressed. This analysis or classification is mainly used for maintenance (spare parts inventory management) and is based on the significance or criticality of the item or spare part. The abbreviation for V, E and D are:
V-Stands for 'Vital' Items These items are highly significant, no matter whether they are costly or cheap. Non-availability of such items would halt the production and running of the machine. For instance, the piston and cylinder are vital items for a bike. Of course, these are very costly items. However, a valve for the tyre of the bike is also vital item though it is very cheap.
E-Stands for 'Essential' Items Non-availability of such items renders temporary dislocation or loss of production. In case of stock-out of such items expensive procurement may have to be made, if no stand-by facilities are available. For example, the brake for bike is essential item.
D-Stands for 'Desirable' Items These items are necessary but do not cause any immediate loss in production. The stock-out of desirable items may entail very nominal expenditure in procurement and may cause minor disruption for a short duration, e.g. the seat covers, rare view mirror for a bike may be categorized under desirable items.
Note that A-B-C analysis categories items to their consumption value (cost oriented), while V-E-D analysis determines the effects of items on production and other services (i.e. functional oriented). Although not included in scientific VED analysis, in some public organizations which are static or inefficiently managed, there is a peculiar category of U items which can be grouped as unnecessary. These unnecessary items get purchased due to the following reasons. a) b) c) d) e)
Thoughtless continuation of previous purchase. Indifferent attitude towards hospital formulary Fear of change Poor supervision and control Unfair practice due to vested interest. The vital items are stocked in abundance; essential items are
stocked in medium amounts, and desirable items we stocked in small amounts.
By stocking the items in order of priority, vital and essential items
are always in stock which means a minimum disruption in the services offered to the people.
VED Analysis is very useful to categorize items of spare parts and components. In fact, in the inventory control of spare parts and components it is advisable, for the organization to use a combination of ABC and VED Analysis. Such control system would be found to be more effective and meaningful.
AV
AE
AD
BV
BE
BD
CV
CE
CD
90%
80%
70%
95%
85%
75%
99%
90%
80%
This type of classification helps the management to decide the materials policy and what the service levels are expected to see that no difficulty is faced. An item belongs to both A and V class is costlier, at the same time higher criticality, the management should see that it is available at any time the need arises and the stock levels to be controlled properly to see that inventory carrying cost are kept under control.
