Untitled - CII Institute of Logistics

FUNDAMENTALS OF LOGISTICS
Types of Selective Inventory Control Techniques
ABC Analysis
Relates to the annual usage cost of a particular item. Generally 10 per cent of items account for nearly
70 per cent of usage value, another 20-30 percent may account for 20 per cent of usage value and the
balance 60 – 70 per cent accounts for 10 per cent of the usage value. Items are classified as per their
usage value.
‘A’ items costs approximately 60 – 70 per cent of the total inventory cost while they are less in number.
‘B’ items cost 20-30 per cent of the total inventory cost while ‘C’ class items are greater in number and
carry less than 10 per cent of the cost of the entire inventory.
VED Analysis
Related to the Vital, Essential, and Desirable status of inventory items. As the term implies, certain
parts and items are considered to be vital for meeting operational requirements and this aspect is taken
into consideration while making a forecast. While making a forecast, certain items and parts, which are
considered as vital for meeting operational requirements, are considered. The modified version of this
is the ABC analysis. VED analysis, takes into consideration both the value and criticality of each item.
Continuous review is necessary for high value and critical items and thus is ordered in low quantities.
Low value, least critical items are reviewed periodically and ordered in large quantities and have lower
safety stock requirements.
SAP analysis
Refers to Scarce, Available and Plenty analysis which allows to build into provision forecasts. The
ordered quantity is governed by the scarcity factor. The guideline for procurement policy decisions
would be the limitations in supply or the obsolescence of the firm in the near future.
FSN analysis
The Fast, Slow or Normal analysis determines the consumption pattern of each item. However, a
realistic picture for procurement action will not be available from a consumption pattern where the
production run is slowed down due to various other reasons.
SDE Classification
Classification based on the availability of an item. S items are scarce items, which needs to be imported
and thus take a long time to obtain. D items are difficult to obtain, and E items are easily obtainable.
Inventory Planning Models:
CII INSTITUTE OF LOGISTICS 28
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