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Selective Inventory Control

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.ClassificationFull-FormCriterion Employed
1ABC AnalysisAlways Better ControlUsage Value (i.e. Consumption per period x price per unit)
2VED AnalysisVital Essential DesirableLoss of Production or Criticality of the item
3HML AnalysisHigh Medium LowUnit Price i.e. does not take consumption into account
4SDE AnalysisScarce Difficult EasyProcurement Difficulties
5GOLF AnalysisGovernment Ordinary Local ForeignSource of procurement
6SOS AnalysisSeasonal Off SeasonalSeasonality
7FSN AnalysisFast Slow Non MovingIssues from stores
8XYZ Analysis Inventory Investment

1. ABC Analysis In Inventory Management

Based on a very important principle: ” Vital Few: Trivial many”

TypeAccount for (Quantity)Account for (Expenditure)
A Items5-10%70-75%
B Items10-20%10-20%
C Items70-80%5-10%
Figure 1

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 AItem BItem C
SupplyMany Suppliers or manufacturerSingle or Few SupplierSingle Supplier

2. VED Analysis

Classification of items based on their criticality

InitialStands ForDescription
VVitalThose items for want of which production would come to stop
EEssentialitems whose stockouts cost is very high
DDesirableitems 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

1Identification of factors essential for VED analysislead time, nature of the item, source of supply
2Assign points or weightage to the factors as per the importancemaybe 30,30,20 & 20 points
3Divide each factor into 3 degrees & allocate points to each degreeThe first degree is allocated points equal to the weightage of its factor, second degree – twice the weightage and third-degree – thrice the weightage
4Prepare categorization planprovides basis V E D
5Evaluate itemsone by one against each factor & assign points
6Place the items into V, E & D categoriesdepending  on points scored by them & the basis of classification


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

1To assess storage & Security RequirementsHigh priced items in cupboards e.g. bearings, worm wheels
2To keep control over consumption at the departmental head levelAuthority to indents of High & Medium priced items to departmental head after careful scrutiny
3To determine the frequency of stock verificationchecking frequency: more for high priced items and less for the L category
4To evolve buying policies to control purchasesExcess supply: Not accepted in case of H & M category, Acceptable in case of L category
5To delegate authorities to different buyers to make a petty cash purchaseH & 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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