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Case studies

CHAPTER 2
CASE STUDIES
Case study: ABC Analysis for Inventory Management-Case Study of Sponge Iron
Plant
2.1 INTRODUCTION
A case study is presented about ABC analysis conducted, based on data collection
made for 1 year through the general store manager and other staff involved in inventory
control operation of sponge iron plant, Rasmada.

2.2 PROCEDURE
To conduct ABC analysis, following steps are necessary:
1) Prepare the list of items and calculate their unit price, annual consumption,
2) Arrange items in the decreasing of their annual usage.
3) Calculate percentage of annual usage, cumulative of annual usage and then
categories the inventory item.
4) Plot the graph on the basis of cumulative of annual usage and then categories the
inventory items
A-class item
These items are generally 10-15 % of total item and 60-70 % money spent on total inventory
items.
B-class item
These items are generally 20-25 % of total item and 20-30 % money spent on total inventory
item.
C-class item
These items are generally 60-70 % of total item and 10-15 % money spent on inventory
item.
Table.1 Particulars of ABC analysis

Particulars
Control
Requirement
Check
Safety stock

A-class
item
High
Low
Tight
High

B-class
item
Intermediate
Intermediate
Intermediate
Low

C-class
item
Low
High
No
Rare

Case studies

Table.2 Analysis of Case Study Data


Item
no.

Unit
cost
(Rs.)

Item

1
2
3
4
5
6
7
8

Diesel
Conveyor belt
SP 320 oil
Cement
HLP 68 oil
S.I. copper wire 18SWG
Valve size 8
Copper wire 185WG

49.27
1000
147.65
270
147.65
609.9
73983
649.8
1066.6
6
158
1824
131.88

9
10
11
12

G.I. sheet 10 x 4
Zest EP-2 grease
Ceramic blanket
Supratech WR-2 grease

13

Silver nitrate

14
15

Nomex paper 7NIL


A.C. sheet 3MTR

16
17
18
19

Bearing 6313/C3
Welding electrode E310-16
Cooler for dome
Becktol red

20

Full LPG/RLN cylinder

135000
1312.5
1
573.16
3165.5
5
1239
14729
845.6
1223.5
7

Annual
demand
(Units)
9600 LTR
225
1260 LTR
360 BAG
630 LTR
147.6 KG
1 NO
108.6 KG

Annual
usage
(Rs.)
472992
225000
186039
97200
93019.5
90021.24
73983
70568.28

%
Annual
usage
26.46
12.58
10.4
5.43
5.2
5.03
4.13
3.94

Cumulative
of annual
usage
26.46
39.04
49.44
54.87
60.07
65.1
69.23
73.17

Categor
y

60 NO
360 LTR
30 NO
364 LTR

63999.6
56880
54720
48004.32

3.58
3.18
3.06
2.68

76.75
79.93
82.99
85.67

B
C
C
C

0.3 KG

40500

2.26

87.93

30 KG
60 MTR

39375.3
34389.6

2.2
1.92

90.13
92.05

C
C

10 NO 3
24 KG
2 NO
30 KG

1655.5
29736
29458
25368

1.77
1.66
1.64
1.41

93.82
95.48
97.12
98.53

C
C
C
C

20 NO

24471.4

1.36

99.89

Fig.2. Percent Item Usage of the Inventory Items.

10

A
A
A
B
B
B
B
B

%
Annual
Demand
15

35

55

Case studies
Table.3 Result of ABC Analysis

Category

Annual
deman
d

A
B
C

3
6
11

%
Annual
deman
d
15
35
55

Total

20

100

Annual
usage

%
Annual
usage

884031
488792
414558
178738
1

49.46
27.35
23.19
100

CONCLUSION
In manufacturing environment, an organization needs to maintain the balance
between critical stock- outs and minimizing inventory costs. From the above study it is found
that the analysis will help the manager to manage the inventory item effectively not only for
row material but also for finished goods. It will help the management to understand the
problems occuring due to purchasing, inventory and safety stock.

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