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Part Three
Planning and control
of the total inventory value. As a part, however, it is only one-twentieth or 5 per cent of
the total number of items stocked. This item together with the next highest value item
(D/012) accounts for only 10 per cent of the total number of items stocked, yet accounts
for 47.37 per cent of the value of the stock, and so on.
This is shown graphically in Figure 12.16. Here the wholesaler has classified the
first four part numbers (20 per cent of the range) as Class A items and will monitor the
usage and ordering of these items very closely and frequently. A few improvements in
order quantities or safety stocks for these items could bring significant savings. The six
next, part numbers C/375 through to A/138 (30 per cent of the range), are to be treated
as Class B items with slightly less effort devoted to their control. All other items are
classed as Class C items whose stocking policy is reviewed only occasionally.
Figure 12.16 Pareto curve for items in a warehouse
Although annual usage and value are the two criteria most commonly used to determine
a stock classification system, other criteria might also contribute towards the (higher) classification
of an item:
● Consequence of stock-out. High priority might be given to those items which would seriously
delay or disrupt other operations, or the customers, if they were not in stock.
● Uncertainty of supply. Some items, although of low value, might warrant more attention
if their supply is erratic or uncertain.
● High obsolescence or deterioration risk. Items which could lose their value through
obsolescence or deterioration might need extra attention and monitoring.
Some more complex stock classification systems might include these criteria by classifying
on an A, B, C basis for each. For example, a part might be classed as A/B/A meaning it is an
A category item by value, a class B item by consequence of stock-out and a class A item by
obsolescence risk.