Selective Inventory Control is an essential part of Materials Management. Selective inventory control is emphasized on variations in methods of control from item to item based on a selective basis. We can not apply uniform control since it’s expensive and gives diffused effect. For this purpose, we can use some criterion such as lead time, consumption, criticality, cost of the items, procurement difficulties etc. The following classification can be used for the selective treatment of various types of materials.
Classification of Inventory Control
Below are the type and techniques used in Inventory control system.
No. | Classification | Full-Form | Criterion Employed |
1 | ABC Analysis | Always Better Control | Usage Value (i.e. Consumption per period x price per unit) |
2 | VED Analysis | Vital Essential Desirable | Loss of Production or Criticality of the item |
3 | HML Analysis | High Medium Low | Unit Price i.e. does not take consumption into account |
4 | SDE Analysis | Scarce Difficult Easy | Procurement Difficulties |
5 | GOLF Analysis | Government Ordinary Local Foreign | Source of procurement |
6 | SOS Analysis | Seasonal Off Seasonal | Seasonality |
7 | FSN Analysis | Fast Slow Non Moving | Issues from stores |
8 | XYZ Analysis | Inventory Investment |
1. ABC Analysis In Inventory Management
Based on a very important principle: ” Vital Few: Trivial many”
Type | Account for (Quantity) | Account for (Expenditure) |
A Items | 5-10% | 70-75% |
B Items | 10-20% | 10-20% |
C Items | 70-80% | 5-10% |
A Items
Quantity: Hardly 5-10% of the total items
Expenditure: 70-75% of the total money spent on the materials
Control: Require Maximum, detailed and rigid control
Control by top executives
Procurement: Need to be procured frequently, the quantity per occasion being small.
Need to be stocked in smaller quantities
The inventory can be kept at a minimum by frequent ordering
Supply: Contract with the manufacturers (More than one supplier) to supply in staggered lots according to the production programme of the buyer
Require Value Analysis
B Items
Quantity: Generally 10-20% of the total items
Expenditure: Represent 10-20% of the total expenditure on the materials
Intermediate items
Control: Require Minimum control, need not be as detailed and as rigid as applied to A items
Supply: More items from the same supplier, Bulk Orders
C Items
Quantity: Numerous: 70-80% of the total items
Inexpensive: hardly 5-10% of the total annual expenditure on materials
Insignificant Items: do not require close control
Procurement policy: exactly the reverse of A items
Procurement: infrequently and in sufficient quantities
Price discounts and reduced workload for buyer
Chart: ABC Analysis
Item A | Item B | Item C | |
Quantity | 10% | 20% | 70% |
Expenditure | 70% | 20% | 10% |
Control | Maximum | Medium | Low |
Supply | Many Suppliers or manufacturer | Single or Few Supplier | Single Supplier |
2. VED Analysis
Classification of items based on their criticality
Initial | Stands For | Description |
V | Vital | Those items for want of which production would come to stop |
E | Essential | items whose stockouts cost is very high |
D | Desirable | items that do not cause any immediate loss of production or stockouts to entail nominal expenditure & cause minor disruptions |
An item may be vital due to following reasons
- Non-availability of an item may cause serious production losses
- Procurement lead time is very high
- It’s a non-standard item and is procured to buyer’s design
- Single source of supply and located far off from buyers location
Steps for VED analysis
1 | Identification of factors essential for VED analysis | lead time, nature of the item, source of supply |
2 | Assign points or weightage to the factors as per the importance | maybe 30,30,20 & 20 points |
3 | Divide each factor into 3 degrees & allocate points to each degree | The first degree is allocated points equal to the weightage of its factor, second degree – twice the weightage and third-degree – thrice the weightage |
4 | Prepare categorization plan | provides basis V E D |
5 | Evaluate items | one by one against each factor & assign points |
6 | Place the items into V, E & D categories | depending on points scored by them & the basis of classification |
Applications
Best suited for spares inventory
Also can combine with other methods e.g. ABC analysis and VED analysis
3. HML Analysis
Price criteria are used
Categorized into three groups
- H: High
- M: Medium
- L: Low
Management will decide the cut off lines
For Example:
- All items of unit price above Rs. 10000: H Category
- Unit price between Rs. 1000 to Rs. 10000: M Category
- Unit Price below Rs 1000: L Category
Use/ Applications of HML Analysis
1 | To assess storage & Security Requirements | High priced items in cupboards e.g. bearings, worm wheels |
2 | To keep control over consumption at the departmental head level | Authority to indents of High & Medium priced items to departmental head after careful scrutiny |
3 | To determine the frequency of stock verification | checking frequency: more for high priced items and less for the L category |
4 | To evolve buying policies to control purchases | Excess supply: Not accepted in case of H & M category, Acceptable in case of L category |
5 | To delegate authorities to different buyers to make a petty cash purchase | H & M by senior & L by junior buyers |
Reference Books
Materials & Logistics Management, by L. C. Jhamb, Himalaya Publications
Materials Management, Procedures, Text and Cases, A K Datta, 2nd Edition, PHI
This is all about Selective Inventory Control and Classification of Inventory Control.
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