TOOLS OF INVENTORY CONTROL
SELECTIVE INVENTORY CONTROL
Variances in the method of control from item to item based on selective basis.
The criteria used for the purpose may be cost of the item, criticality, lead time, consumption procurement difficulties, etc.
Various classifications are employed to render selective treatment to different type of materials, each classification emphasizes on a particular aspect.
- Hence if all the stock items are analyzed in terms of their annual consumption value, major part of total consumption value on a Railway (about 70-80%) is of only few high consumption value items (say 10 to 20%). These items may be classified as A category.
- 15 to 20% of total consumption is represented by another 15 to 20% items which may be classified as B category .
- Remaining 5 to 10% consumption is represented by a large no. of small consumption value items which may be classified as C category.
- A-B-C Analysis :This analysis is based upon Pareto Principle according to which in many situations, majority of the activity (70 to 80%) is governed by very few (10 to 20) attributes.
VED Analysis
Represents classification of items based on their criticality
Classifies items into 3 groups called ‘Vital’, ‘Essential’ & ‘Desirable’
-‘Vital’ category consists of those items for want of which production would come to a halt.
- ‘Essential’ group includes items whose stockouts costs is very high.
- ‘Desirable’ group consists of items which do not cause any immediate loss of production.
Steps
- Identify the factors to be considered for VED Analysis
- Assign points/weightages to the factors according to their importance to the company
- Divide each factor into 3 categories & allocate points to each category
- Prepare categorisation plan
- Evaluate items one by one against each factor & assign points to the item
- Place the V,E &D categories depending upon the points scored by them
S-D-E Analysis
It is based on problems of procurement like:
Non availability
Scarcity
Longer lead time
Geographical location of suppliers
Reliability of suppliers
It is classified in 3 categories called “Scarce”, “Difficult” & “Easy”.
The information is used to decide purchasing strategies.
“Scarce” classification comprises items which are short in supply, imported or cannalised through government agencies.
“Difficult” classification includes those items which are available indigenously but are not easy to procure.
“Easy” classification covers those items which are readily available.
S-D-E Analysis is employed by the purchase department:
To decide on the method of buying:
Eg: Forward buying method for some of the items in the “Scarce” group; “Scheduled buying” & “contract buying” for “Easy” group
To fix responsibility of buyers:
Eg: Senior buyers may be given responsibility of ‘S’ & ‘D’ groups while ‘E’ group may be handled by junior buyers or directly by the storekeeper.
G-NG-LF/GOLF Analysis
Its like S-D-E Analysis
It is based on nature of suppliers which determine quality, lead time, terms of payment, continuity or otherwise of supply & administrative work involved.
The analysis classifies the items into 4 groups G-NG-L & F.
“G” group covers items procured from “government”. Transactions with this category of suppliers involve long lead time & payments in advance or against delivery.
“NG” or O in (GOLF) group covers items procured from “non-government”. Transactions with this category of suppliers involve moderate delivery time & availability of credit usually in the range of 30-60 days.
“L” group contains items bought from “local suppliers”. The items bought from these suppliers are cash purchased or purchased on blanket orders.
“F” group contains those items which are purchased from “foreign” suppliers.
The transactions with such suppliers:
S-O-S Analysis
Its based on seasonality of items.
It classifies items into 2 groups S (seasonal) & OS (Off Seasonal)
The analysis identifies items which are:
Seasonal & are available only for a limited period of time eg raw mangoes, etc.
Such items are procured to last the full year.
Seasonal but are available throughout the year. Their prices are lower in the harvest season.
Non seasonal items whose quantity is decided on different considerations
M-N-G Analysis
This analysis is based on stock turnover rate & it classifies the items into M (Moving items), N (Non-moving items) & G (Ghost items).
M (Moving items) are items consumed from time to time.
N (Non-moving items) are items not consumed in the last year.
G (Ghost items) are those items which had nil balance, both in the beginning & at the end of the financial year. All pending/open purchase orders (if any) of such items should be cancelled.
F-S-N Analysis
F-S-N Analysis is based on consumption figures of the items.
It is classified into 3 groups: F (Fast moving), S (Slow moving) & N (Non-moving)
To conduct these analysis, the last date of receipt or the last date of issue whichever is later is taken into account.
The period, is usually in terms of number of months that has elapsed since the last movement record.
Economic Order Quantity :
Depending upon various variables, different inventory models have been developed. Different models take different costs into account. One of the popular model developed for items of repetitive nature (dynamic), future demands for which can be projected with certainty is Economic Order Quantity (EOQ) model.
Economic Order Quantity (EOQ) = Sq. Rt. { 2xAxCo / (Cu x Ci) }
Where,
A = Annual Consumption Quantity
Co = Cost of placing one order
Ci = Annual inventory carrying cost represented as fraction
Cu = Unit Cost (Rate/Unit) of the material
0 Comments