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ABC ANALYSIS &VED ANALYSIS

NAME: SUMIT CHAUDHARI SAURABH NAIR

ROLL NO. S-202. S-222.

SUBJECT: PRODUCTION & MATERIALS MANAGEMENT..

I also extend my heartfelt thanks to my family and well-wishers. naresh sukhani the guide of the project for guiding and correcting various documents of us with attention and care. . Our deepest thanks to lecturer. He has taken pain to go through the project and and make necessary connection as when needed.ACKNOWLEDGEMEN T we owe a great thanks to many people who helped and supported us during this project. I would also thank my institution without whom this project would have been a distant reality.

 C ITEMS: simplest controls possible and minimal records The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost.in.  B ITEMS: LESS TIGHTLY CONTROLLED and good records .   'A' items are very important for an organization. The ABC analysis suggests that inventories of an organization are not of equal value. the inventory is grouped into three categories (A.  It stands for Always Better Control.time’) to avoid excess .g. ‘Just. Thus.➢ Inventory Control Methods  Basically there are two methods in inventory control: • ABC Analysis. Policies based on ABC analysis:  A ITEMS: very tight control and accurate records. ➢ ABC ANALYSIS The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. and C) in order of their estimated importance. an organization needs to choose an appropriate order pattern (e. while also providing a mechanism for identifying different categories of stock that will require different management and controls. B. • VED Analysis. frequent value analysis is required. In addition to that. It is also known as Selective Inventory Control. Because of the high value of these ‘A’ items.

 ➢ ➢ Definition An analysis of a range of items that have different levels of significance and should be handled or controlled differently. ➢ ➢ . and C) in order of their estimated importance. 'B' and 'C' customers warrant progressively less attention and are serviced accordingly. Therefore ‘B’ items are intergroup items. 'C' items are marginally important. inventory items. and receive most attention. 'B' items are important. customers. It is a form of Pareto analysis in which the item (such activities. documents. For example. sales territories) are grouped into three categories (A. than ‘A’ items and more important than ‘C’ items.capacity.  'B' items are important. the best customers who yield highest revenue are given the 'A' rating. 'A' items are very important. but of course less important. 'C' items are marginally important. B. are usually serviced by the sales manager.

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Large quantities can be brought at a time. The stock report of ‘A’ items should be sent more frequently.➢ ➢ ➢ ➢ ➢ 1. 4. say at least once in 15 days. Paper work can be reduced considerably if orders are placed once or twice a year. They should be ordered more frequently to reduce capital lock up at a time in inventories as 15 percent of items cost 65 percent of total value. B items should be ordered less frequently than A items. as total investment will be least. Policies for ‘A’ group items ➢ ➢ ➢ ➢ Policies for ‘B’ group items These account for 20 percent of total quantity and 20percent of the total value. re-order stocks and safety stock should be fixed and revised for ‘B’ items at least one in every 4 to 6 months. 2. ➢ ➢ ➢ ➢ ➢ Policies for ‘C’ group items C group of items account for 65 percent of quantity and hardly 15 percent of value. Order quantities. The purchasing department should make the maximum efforts to expedite and delivery of these items are to be stored as few in number as possible. The purchase of these items should be with top officials to ensure prompt services from the supplier. The source of supply can be one or two based on their reliability ➢ Pareto law: . 3.

or which are kept as inventory so that there is no effect on the 80% of the total consumption value or value of inventory which is held in stores.” ➢ It is also known as the 80/20 rule. usually 20% of the items contribute 80% of the annual consumption value or value of materials held in stores at any given time. so 80/20 rule is useful as it states that we have to focus on 20% of the total items used.➢ In any series of elements to be controlled. . It means that 20% of the items are vital few and the balances 80% are trivial many. Pareto law states that “the vital few and trivial many” which applies to many areas of inventory control. only a small fraction in terms of elements will usually account for a large fraction in terms of results. ➢ The primary objective of inventory control is to reduce costs. In inventory management.

This ranking is used to assign classes to your items. Assignment may be made based upon the following criteria: ○ Sequence number ○ Items Percent ○ Inventory Value ○ Value Percent • Update ABC assignment groups. Define an ABC assignment group. Define class names that suit your business environment. Assign ranking to the classes within an assignment group.: Create a group name. Assign the compile to the group. however you may run the report at a later time. • • • • • Assign items to the classes. Execute • ABC Assignments Report. Choose classes to use with the assignment group. Associate classes with the assignment group. .PROCEDURE FOR ABC ANALYSIS: • . . Define class names: Use your own terminology to determine what are commonly used as ABC classes. Generate the ABC Descending Value report: This step may have been performed as part of step 2. Create the ABC compile: The ABC compile ranks all the items in your inventory based upon criteria you select.

Review report for errors. Companies perform a Pareto analysis to determine ABC item classifications. end of activity. Otherwise. • The ABC inventory control method determines the importance of inventory items based on usage. This inventory control method provides companies the ability to give individual stock keeping units (SKUs) different levels of inventory control based on the SKUs relative importance. ➢ADVANTAGES OF ABC ANALYSIS. sales or costs criteria.If there are errors in class assignments.• The ABC Assignments Report will display all items and the classes of the items. The ABC inventory method offers . goto task #8.

ABC analysis provides a company with information to stock the right-mix of inventory. . it ends up stocking a better mix of the items customers require.advantages over non-classification methods in the areas of cost-control. SKU level management and order fulfillment. even without implementing cost-savings initiatives a company experiences cost-reductions from eliminating excess stock for less important. Improved service: • One of the greatest benefits comes from the improvement in customer service levels and order fulfillment. When a company has the right inventory at the right time it reduces backorders and unfilled orders. a company that uses annual usage as its basis for classification stocks more of the "A" class items because of their higher usage and less of the lower use "C" class items. Control: • Utilizing the ABC inventory method gives a company more control over the inventory it stores. If a company uses customer demand as its basis for analysis. reducing safety-stock levels and negotiating reduced pricing with suppliers. companies can focus on containing the cost of the 20% of items that make up 80% of a companies annual spend. Once a company has determined which items fall into each ABC category it can establish cost-reduction initiatives at the SKU level. Stocking a better mix of the right inventory allows a company to control over-supply and under-supply of important SKUs. On the other hand. Additionally. This has a positive impact on customer service and gives a competitive advantage to the company that uses this methodology. A company that uses annual costs of goods sold (COGS) as its basis for the ABC classification method stocks less of the "A" class items (identified as having higher annual COGS) and stocks more of the "B" and C" class items (identified as having lower annual COGS). • These initiatives can include reducing the SKU's lead-time. Costs: • Because the ABC inventory method makes use of Pareto's law (the basic 80/20 rule). but sometimes-costly SKUs.

Implementing ABC inventory management in the warehouse reduces labor cost and increases productivity. Companies utilizing ABC analysis in the warehouse give priority space to faster moving SKUs.  DISADVANTAGES OF ABC ANALYSIS Standardization and codification: Proper standardization and codification of inventory items needed.Warehouse: • ABC inventory extends to warehouse management has well. Considers money value of items: Considers only money value of items & neglects the importance of items for production process or assembly or functioning. Assumes that price remains the same. This allows workers to rapidly find. pick and pack fast moving items. .

In practice it is unlikely to be so.. It is the Analysis for monitoring and control of stores and spares inventory by classifying them into 3 categories viz.Price of an item is assumed to be same throughout the year.. Vital.. Essential and Desirable.. Vital. • VED Classification ... Essential and Desirable Analysis. ➢ • Ved analysis VED Analysis means. The mechanics of VED analysis are similar to those of ABC Analysis.

the part is given ‘D’ classification. criticality of inventories is the basis for vital. It is specially used for classification of spare parts. if it is essential. If a part is vital it is given ‘V’ classification. The VED analysis is done to determine the criticality of an item and its effect on production and other services. minimum stock is enough. while for ‘D’ items. then it is given ‘E’ classification and if it is not so essential. a large stock of inventory is generally maintained. The inventory policy is to keep at least one number of the vital spare irrespective of its value.While in ABC. • • • • V-Vital The vital spare parts are those which can cause stoppage of the plant. classification inventories are classified on the basis of their consumption value and in HML analysis the unit value is the basis. if they are not available at the right time. • . E-Essential Essential spare parts are those whose non availability may not adversely affect production. Usually such spare parts are known as Capital or Insurance spares. essential and desirable categorization. For ‘V’ items. Such spare parts may be available from many sources within the country and the procurement lead time may not be long.

if not available. can be manufactured by the maintenance department or may be procured from local suppliers and hence no stock is held usually. .• Hence a low inventory of essential parts is held D-Desirable The Desirable spare parts are those which.

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