Business Aspects in Banking

and Insurance
Insurance
Laavin Hiranandani

S-218

Saurabh Nair

S-222

Sumit Chaudhari

S-202

Jay Dedhia

S-204

Nikhil Bhatkar

S-201

Introduction

ABC Analysis
TheABC analysisis a business term used to
define aninventorycategorization
technique often used inmaterials
management.
It is also known asSelective Inventory
Control.
It stands for Always Better Control.

Importance
The ABC analysis provides a mechanism for
identifying items that will have a significant
impact on overall inventory cost, while also
providing a mechanism for identifying
different categories of stock that will
require different management and controls.
The ABC analysis suggests that inventories
of an organization are not of equal value.
Thus, the inventory is grouped into three
categories (A, B, and C) in order of their
estimated importance.

Importance

A'items are very important for an

organization. Because of the high value of
these A items, frequent value analysis is
required. In addition to that, an organization
needs to choose an appropriate order pattern
(e.g.
Just-are
in- important,
time) to avoid
excess
capacity.
'B'items
but of
course
less
important, than
A items and more important than C items.
Therefore B
items are intergroup items.
'C'items are marginally important.

Policies
A Group Item
They should be orderedmorefrequently to
reduce
capitallockupata timein
inventoriesas15 percentof items cost. 65
percentof totalvalue.
Thepurchasingdepartmentshould make
themaximumefforts to expedite and
deliveryof theseitems are to be stored
asfewin numberaspossible.
Thepurchase of theseitems should bewith
top officials to ensureprompt services from
thesupplier.
Thestockreportof Aitems should besent
morefrequently,say atleastonce in 15 days.

Policies
B Group Items
Theseaccount for 20percentof total quantity
and 20percentof thetotal value.
Orderquantities, re-orderstocks and safety
stockshould befixed and revised for Bitems
atleastonein every 4 to 6 months.
B items should beorderedless frequently than
A items.

Policies
C Group Items
C groupof items account for 65 percentof
quantity and hardly 15percentof value.
Large quantitiescan be broughtata time,
astotalinvestmentwill be least.
Paperworkcan be reduced considerably if
orders are placed
once or twicea year.
Thesourceof supply can be oneor two
basedon their reliability.

Paretos Law
It is also known
as the 80/20
rule. Pareto law
states that the
vital few and
trivial many
which applies
to many areas
of inventory
control.
In inventory
management,
usually 20% of
the items
contribute 80%

Procedure for ABC Analysis

eate the ABC compile

enerate the ABC Descending Value report

efine class names

efine an ABC assignment group

ssociate classes with the assignment group

Procedure for ABC Analysis

Assign items to the classes

Update ABC assignment groups

Execute ABC Assignments Report

Review report for errors

Advantages of ABC Analysis

Control
Costs
Improved Service
Warehouse

Disadvantages of ABC Analysis

Standardization and Codification

Considers Money Value of Items

Assumes that Price remains the same

VED Analysis
VED Analysis means Vital, Essential and
Desirable Analysis.
This classification is usually applied for
spare parts to be stocked for
maintenance of machines and
equipments which are based on the
criticality of the spare parts. The
stocking policy is based on the criticality
of the items.

V-Vital VED

Analysis

The vital spare parts are those

which can cause stoppage of the
plant, if they are not available at the
right time.
Usually such spare parts are
known as Capital or Insurance
spares.
The inventory policy is to keep at
least one number of the vital spare
irrespective of its value.

VED Analysis

E-Essential

Essential spare parts are those whose

non availability may not adversely affect
production.
Such spare parts may be available
from many sources within the country and
the procurement lead time may not be
long.
Hence a low inventory of essential
parts is held.

VED Analysis
D-Desirable

The Desirable spare parts are those

which, if not available, can be
manufactured by the maintenance
department or may be procured from
local suppliers and hence no stock is held
usually.

Thank
You