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APM Theory

The document discusses various inventory classification techniques including ABC analysis, VED analysis, FSN analysis, and XYZ analysis. ABC analysis classifies inventory items based on their annual cost, with category A items having the highest cost. VED analysis classifies items based on their critical value and shortage cost. FSN analysis classifies based on utilization rates. XYZ analysis classifies based on the inventory value stored.

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47 views

APM Theory

The document discusses various inventory classification techniques including ABC analysis, VED analysis, FSN analysis, and XYZ analysis. ABC analysis classifies inventory items based on their annual cost, with category A items having the highest cost. VED analysis classifies items based on their critical value and shortage cost. FSN analysis classifies based on utilization rates. XYZ analysis classifies based on the inventory value stored.

Uploaded by

balabt
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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INVENTORY CLASSIFICATION

ABC ANALYSIS
It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory. About 10 % of materials consume 70 % of resources

About 20 % of materials consume 20 % of resources


About 70 % of materials consume 10 % of resources

ABC
A N A L Y S I S

ITEM %
10 %

ITEM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

ANNUAL COST [Rs.] 90000 50000 20000 7500 7500 5000 4500 4000 2750 1750 1500 1500 500 500 500 500 500 500 500 500

CUMMULATIVE COST [Rs.] 90000 140000 160000 167500 175000 180000 184500 188500 191250 193000 194500 196000 196500 197000 197500 198000 198500 199000 199500 200000

COST %

70 %

20 %

20 %

70 %

10 %

WORK SHEET

A ITEMS
Small in number, but consume large amount of resources
Must have:
Tight control Rigid estimate of requirements Strict & closer watch Low safety stocks

Managed by top management

C ITEMS
Larger in number, but consume lesser amount of resources
Must have:
Ordinary control measures Purchase based on usage estimates High safety stocks ABC analysis does not stress on items those are less costly but may be vital

B ITEM

Intermediate
Must have: Moderate control

Purchase based on rigid requirements


Reasonably strict watch & control Moderate safety stocks Managed by middle level management

VED ANALYSIS
Based on critical value & shortage cost of an item It is a subjective analysis Items are classified into: Vital: Shortage cannot be tolerated. Essential: Shortage can be tolerated for a short period. Desirable: Shortage will not adversely affect, but may be using more resources. These must be strictly Scrutinized

V A B C
AV BV

E
AE BE

D
AD BD CATEGORY 1 CATEGORY 2

ITEM 10 20

COST 70% 20%

CV

CE

CD

CATEGORY 3

70

10%

CATEGORY 1 CATEGORY 2

- NEEDS CLOSE MONITORING & CONTROL - MODERATE CONTROL

CATEGORY 3

- NO NEED FOR CONTROL

FSN ANALYSIS
Based on utilization.

Fast moving Slow moving Non moving


Non-moving items must be periodically reviewed to prevent expiry & obsolescence

XYZ ANALYSIS
The XYZ classification has the value of inventory stored as the basis of differentiation
X: Items with high inventory value Y: Items with moderate inventory value Z: Items with low inventory value
The basis of control is the annual closing inventory value

XYZ ANALYSIS Contd.,


Class
X Y Z

Criteria
70% of Inventory Value (constant consumption) 20% of Inventory Value (stronger fluctuations in consumption) 10% of Inventory Value (completely irregular consumption)

Selective Control Basis of classification Technique ABC Consumption value Controlling RM, WIP and components Chief Use

XYZ

Value of item in storage

Reviewing the inventories & other uses

FSN

Consumption rate of item

Controlling obsolescence

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