VED ANALYSIS

In VED Method (vital, essential and desirable) , each stock item is classified on either vital, essential or desirable based on
how critical the item is for providing health services. The vital items are stocked in abundance, essential items are stocked in
medium amounts and desirable items we stocked in small amounts. Vital and essential items are always in stock which
means a minimum disruption in the services offered to the people

THE VED METHOD OF INVENTORY CONTROL :-

In VED analysis, the inventory is classified as per the functional importance under the following three categories:

 Vital (V)
 Essential (E)
 Desirable (D)

THE VED METHOD OF INVENTORY CONTROL

In VED analysis, the inventory is classified as per the functional importance under thefollowing three categories:

 Vital (V) :-Items without which treatment comes to standstill: i.e. non- availability cannot be tolerated. The vital
items are stocked in abundance, essential items and very strict control.
 Essential (E) :-Items whose non availability can be tolerated for 2-3 days, because similar or alternative items are
available. Essential items are stocked in medium amounts, purchase is based on rigid requirements and reasonably
strict watch.
 Desirable (D):-Items whose non availability can be tolerated for a long period. Desirable items are stocked in small
amounts and purchase is based on usage estimate.

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.

PURPOSES :-

 In a manufacturing organization, there are number of items which are very vital or critical in production.
 Their availability must be ensured at all times for smooth production, so need to be strictly controlled.
 Essential items follow vital items in their hierarchy of importance.
 Desirable items are least importance in terms of functional considerations, which are loosely controlled at the lower
level.

MATRIX OF ABC/ VED ANALYSIS :-

There can be combination of these two categories like a matrix combining ABC and VED categories. This matrix is more
relevant in the hospitals. The AV category becomes the most important for inventory control because the items are very
much cost consuming being a category and also vital for uses. These items can be controlled by the top-level management.
The CD category items are not very costly and at same time of desirable category. These items can be controlled at the
lower level.

VED

A AV - AE AD

B BV BE BD

C CV CE CD -

CONTROL OF VED ITEMS:-

The ABC-VED matrix is formed by cross-tabulating the ABC and VED analysis. Three combinations are formed
from the resultant combination. It should be noted that the first letter in this category denotes the place of the item in
ABC analysis where the second letter shows the place of the item in VED analysis.

 Category I items: these items are the most important ones and require control by the administrator himself.
These items are both expensive and critically vital for patient’s life. They need to be monitored and controlled
continuously. These items might be in sub-categories namely, AV, AE, AD, BV and CV.
 Category II items: these items are of intermediate importance and should be under control of the officer in charge
of the stores. The items in this group are not as expensive as the first group or not as critically vital for patient’s life.
These need to be controlled periodically. These items might be in sub-categories namely, BE, CE, BD.
 Category III items: these items are of least importance which can be left under the control of the store keeper.
These items in this group are the least expensive and vital. They do not need to be controlled periodically. These
items might be in sub-category namely, CD.
 The grouping will essentially depend upon the strategy of management and the environment of functioning.
However these simple techniques can be effective in material management system.
 Items with high criticality (V), but required in small quantity (A) should receive highest priority. Items with low
criticality (D) and which are required in big quantity should receive least priority.

ABC ANALYSIS
 ABC analysis is the analysis of the store items cost criteria.
 It is a simple approach, which avoids being money wise.
 The cost of each item is multiplied by the number used in a given period and then these items are tabulated in
descending numerical value order.
 It will be seen that first 10% of items approximately account for 70%, the next 20% for 20% of value and the last
70% account for 10% of value.
 It has been seen that a large number of items consume only a small percentage of resources and vice- versa.
 A – Items represent the high cost centre, B items represent the immediate cost centres, and C- items represent low
cost centres.
  A very close control is exercised over A items while less stringent control is adequate for those in the category B,
and less attention for category C.
The ABC approach states that a company should rate items from A to C, basing its ratings on the following rules:
 A-items are goods which annual consumption value is the highest; the top 70-80% of the annual consumption value
of the company typically accounts for only 10-20% of total inventory items
 B-items are the interclass items, with a medium consumption value; those 15-25% of annual consumption value
typically accounts for 30% of total inventory items
 C-items are, on the contrary, items with the lowest consumption value; the lower 5% of the annual consumption
value typically accounts for 50% of total inventory items.

Steps for the classification of items:

1. Find out the unit cost and and the usage of each material over a given period;

2. Multiply the unit cost by the estimated annual usage to obtain the net value;

3. List out all the items and arrange them in the descending value (Annual Value);

4. Accumulate value and add up number of items and calculate percentage on total inventory in value and in
number;

5. Draw a curve of percentage items and percentage value;

6. Mark off from the curve the rational limits of A, B and C categories.

Percentage of
Percentage value of annual usage
items

Close day to day

Class A items About 20% About 80%
control

Class B items About 30% About 15% Regular review

Infrequent
Class C items About 50% About 5%
review

POLICIES

Each item should receive a treatment corresponding to its class:

 A-items should have tight inventory control, more secured storage areas and better sales forecasts; reorders should be
frequent, with weekly or even daily reorder; avoiding stock-outs on A-items is a priority.

 B-items benefit from an intermediate status between A and C; an important aspect of class B is the monitoring of potential
evolution toward class A or, in the contrary, toward the class C.
 Reordering C-items is made less frequently; a typically inventory policy for C-items consist of having only 1 unit on hand,
and of reordering only when an actual purchase is made; this approach leads to stock-out situation after each purchase which
can be an acceptable situation, as the C-items present both low demand and higher risk of excessive inventory costs.

ADVANTAGES OF IMPLEMENTING THE ABC METHOD

 This method helps businesses to maintain control over the costly items which have large amounts of capital invested in them
 It provides a method to the madness of keeping track of all the inventory. Not only does it reduce unnecessary staff
expenses but more importantly it ensures optimum levels of stock is maintained at all times
 The ABC method makes sure that the stock turnover ratio is maintained at a comparatively higher level through a systematic
control of inventories
 The storage expenses are cut down considerably with this tool
 There is provision to have enough C category stocks to be maintained without compromising on the more important items

DISADVANTAGES OF USING THE ABC ANALYSIS

 For this method to work and render successful results, there must be proper standardization in place for materials in the store
 It requires a good system of coding of materials already in operation for this analysis to work
 Since this analysis takes into consideration the monetary value of the items, it ignores other factors that may be more
important for your business. Hence, this distinction is vital.