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VED Classification

The VED analysis is done to determine the criticality of an item and its effect on production and
other services. It is specially used for classification of spare parts. If a part is vital it is given V
classification, if it is essential, then it is given E classification and if it is not so essential, the
part is given D classification. For V items, a large stock of inventory is generally maintained,
while for D items, minimum stock is enough.
VED Analysis attempts to classify the items used into three broad categories, namely Vital,
Essential, and Desirable. The analysis classifies items on the basis of their criticality for the
industry or company.
Vital: Vital category items are those items without which the production activities or any other
activity of the company, would come to a halt, or at least be drastically affected.Essential:
Essential items are those items whose stock out cost is very high for the company. Desirable:
Desirable items are those items whose stock-out or shortage causes only a minor disruption for a
short duration in the production schedule. The cost incurred is very nominal.
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.
VED analysis is used mainly for the control of spare parts, where V stands for vital, E stands for
essential and D stands for desirable. Absence of vital spare parts will immediately affect
production, absence of essential spare parts will affect production after a few hours or so and
absence of desirable spare parts will affect production only after a week or so.
It is the analysis for monitoring and controlling stores and spare parts inventory by classifying
them into three categories, viz, vital, essential and desirable. The mechanics of VED analysis is
similar to that of ABC analysis. Whereas in ABC classification inventories are classified on the
basis of their consumption value and in HML analysis the unit value is the basis, criticality of
inventories is the basis for vital, essential and desirable categorization.
The stores when subjected to analysis based on their criticality can be classified into vital,
essential and desirable stores. This analysis is termed as VED analysis

. Vital: items without which treatment comes to standstill: i.e. non- availability can not be

Essential: items whose non availability can be tolerated for 2-3 days, because similar or
alternative items are available.

Desirable: items whose non availability can be tolerated for a long period. Although the
proportion of vital, essential and desirable items varies from hospital to hospital
depending on the type and quantity of workload, on an average vital items are 10%,
essential items are 40% and desirable items make 50% of total items available.

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) 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
FSN Analysis

It is based on rate of consumption.

The items can be classified into:

Fast moving

Slow moving

Non- moving


An understanding of the movement of items helps to keep proper levels of inventories by

deciding a rational policy or reordering. This method is based on the fact that some stock items
have a much higher annual usage value than others. This after doing a cost analysis, stock items
are separated into three classes with the following characteristics
F-S-N Analysis: Criterion employed: Rate of consumption of items in terms of rate of their issue
from stores.
In F-S-N analysis, items are classified according to their rate of consumption. The items are
classified broadly into three groups: F means Fast moving, S means Slow moving, N means
Non-moving. The FSN analysis is conducted generally on the following basis:

The last date of receipt of the items or the last date of the issue of items, whichever is
later, is taken into account.

The time period is usually calculated in terms of months or number of days and it pertains
to the time elapsed seems the last movement was recorded.

FSN analysis helps a company in identification of the following

The items to be considered to be active may be reviewed regularly on more frequent

Items whose stocks at hand are higher as compared to their rates of consumption.


Non-moving items whose consumption is nil or almost in significant.

An inventory strategy companies employ to increase efficiency and decrease waste by receiving
goods only as they are needed in the production process, thereby reducing inventory costs.
This method requires that producers are able to accurately forecast demand. A good example
would be a car manufacturer that operates with very low inventory levels, relying on their supply
chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not
arrive before nor after they are needed, rather they arrive just as they are needed.
This inventory supply system represents a shift away from the older "just in case" strategy where
producers carried large inventories in case higher demand had to be met.
Just-in-time manufacturing was a concept introduced to the United States by the Ford motor
company. It works on a demand-pull basis, contrary to hitherto used techniques, which worked
on a production-push basis.
To elaborate further, under just-in-time manufacturing (colloquially referred to as JIT production
systems), actual orders dictate what should be manufactured, so that the exact quantity is
produced at the exact time that is required.
Just-in-time manufacturing goes hand in hand with concepts such as Kanban, continuous
improvement and total quality management (TQM).
Just-in-time production requires intricate planning in terms of procurement policies and the
manufacturing process if its implementation is to be a success.
Highly advanced technological support systems provide the necessary back-up that Just-in-time
manufacturing demands with production scheduling software and electronic data interchange
being the most sought after.
Advantages Just-In-Time Systems
Following are the advantages of Adopting Just-In-Time Manufacturing Systems:

Just-in-time manufacturing keeps stock holding costs to a bare minimum. The release of
storage space results in better utilization of space and thereby bears a favorable impact on
the rent paid and on any insurance premiums that would otherwise need to be made.

Just-in-time manufacturing eliminates waste, as out-of-date or expired products; do not

enter into this equation at all.

As under this technique, only essential stocks are obtained, less working capital is
required to finance procurement. Here, a minimum re-order level is set, and only once
that mark is reached, fresh stocks are ordered making this a boon to inventory
management too.

Due to the aforementioned low level of stocks held, the organizations return on
investment (referred to as ROI, in management parlance) would generally be high.

As just-in-time production works on a demand-pull basis, all goods made would be sold,
and thus it incorporates changes in demand with surprising ease. This makes it especially
appealing today, where the market demand is volatile and somewhat unpredictable.

Just-in-time manufacturing encourages the 'right first time' concept, so that inspection
costs and cost of rework is minimized.

High quality products and greater efficiency can be derived from following a just-in-time
production system.

Close relationships are fostered along the production chain under a just-in-time
manufacturing system.

Constant communication with the customer results in high customer satisfaction.

Overproduction is eliminated when just-in-time manufacturing is adopted.

Following are the disadvantages of Adopting Just-In-Time Manufacturing Systems:

Just-in-time manufacturing provides zero tolerance for mistakes, as it makes re-working

very difficult in practice, as inventory is kept to a bare minimum.

There is a high reliance on suppliers, whose performance is generally outside the purview
of the manufacturer.

Due to there being no buffers for delays, production downtime and line idling can occur
which would bear a detrimental effect on finances and on the equilibrium of the
production process.

The organization would not be able to meet an unexpected increase in orders due to the
fact that there are no excess finish goods.

Transaction costs would be relatively high as frequent transactions would be made.

Just-in-time manufacturing may have certain detrimental effects on the environment due
to the frequent deliveries that would result in increased use of transportation, which in
turn would consume more fossil fuels.

Following are the things to Remember When Implementing a Just-In-Time Manufacturing

Management buy-in and support at all levels of the organization are required; if a just-intime manufacturing system is to be successfully adopted.

Adequate resources should be allocated, so as to obtain technologically advanced

software that is generally required if a just-in-time system is to be a success.

Building a close, trusting relationship with reputed and time-tested suppliers will
minimize unexpected delays in the receipt of inventory.

Just-in-time manufacturing cannot be adopted overnight. It requires commitment in terms

of time and adjustments to corporate culture would be required, as it is starkly different to
traditional production processes.

The design flow process needs to be redesigned and layouts need to be re-formatted, so as
to incorporate just-in-time manufacturing.

Lot sizes need to be minimized.

Workstation capacity should be balanced whenever possible.

Preventive maintenance should be carried out, so as to minimize machine breakdowns.

Set-up times should be reduced wherever possible.

Quality enhancement programs should be adopted, so that total quality control practices
can be adopted.

Reduction in lead times and frequent deliveries should be incorporated.

Motion waste should be minimized, so the incorporation of conveyor belts might prove to
be a good idea when implementing a just-in-time manufacturing system.

Just-in-time manufacturing is a philosophy that has been successfully implemented in many

manufacturing organizations.
It is an optimal system that reduces inventory whilst being increasingly responsive to customer
needs, this is not to say that it is not without its pitfalls.
However, these disadvantages can be overcome with a little forethought and a lot of commitment
at all levels of the organization.
A surprising effect of JIT was that car factory response time fell to about a day. This improved
customer satisfaction by providing vehicles within a day or two of the minimum economic
shipping delay.
Also, the factory began building many vehicles to order, eliminating the risk they would not be
sold. This improved the company's return on equity.
Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. This
caused a quality assurance crisis, which led to a dramatic improvement in product quality.
Eventually, Toyota redesigned every part of its vehicles to widen tolerances, while
simultaneously implementing careful statistical controls for quality control. Toyota had to test
and train parts suppliers to assure quality and delivery. In some cases, the company eliminated
multiple suppliers.
When a process or parts quality problem surfaced on the production line, the entire production
line had to be slowed or even stopped. No inventory meant a line could not operate from inprocess inventory while a production problem was fixed. Many people in Toyota predicted that
the initiative would be abandoned for this reason. In the first week, line stops occurred almost
hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six
months, line stops had so little economic effect that Toyota installed an overhead pull-line,
similar to a bus bell-pull, that let any worker on the line order a line stop for a process or quality
problem. Even with this, line stops fell to a few per week.
The result was a factory that has been studied worldwide. It has been widely emulated, but not
always with the expected results, as many firms fail to adopt the full system.[4]

The just-in-time philosophy was also applied to other segments of the supply chain in several
types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in
the link between a factory and a retail establishment. Examples in sales, marketing, and customer
service involve applying information systems and mobile hardware to deliver customer
information as needed, and reducing waste by video conferencing to cut travel time.[5]