APM theory

7/30/2019 APM theory

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INVENTORY CLASSIFICATION


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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




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20000050020

19950050019

19900050018

19850050017

19800050016

19750050015

19700050014

19650050013

196000150012

194500150011

193000175010

19125027509

18850040008

18450045007

18000050006

17500075005

16750075004

160000200003

140000500002

90000900001

CUMMULATIVECUMMULATIVE

COSTCOST [Rs.]ANNUAL COSTANNUAL COST

[Rs.]ITEMITEM COST %COST %ITEM %ITEM %

70 %70 %

20 %20 %

10 %10 %

10 %10 %

20 %20 %

70 %70 %

ABC

A

N

A

L

Y

S

I

S

WORK

SHEET


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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


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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


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B ITEM

Intermediate

Must have:

Moderate control

Purchase based on rigid requirements

Reasonably strict watch & control

Moderate safety stocks

Managed by middle level management


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VED ANALYSIS

Based on critical value & shortage cost of an item

It is a subjective analysis

Items are classified into:

Vital:

Shortage cannotbe 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


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V E D ITEM COST

A AV AE AD CATEGORY 1 10 70%

B BV BE BD CATEGORY 2 20 20%

C CV CE CD CATEGORY 3 70 10%

CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL

CATEGORY 2 - MODERATE CONTROL

CATEGORY 3 - NO NEED FOR CONTROL


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FSN ANALYSIS

Based on utilization.

Fast moving

Slow moving

Non moving

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

obsolescence


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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


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XYZ ANALYSIS Contd.,

Class Criteria

X 70% of Inventory Value (constant consumption)

Y 20% of Inventory Value (stronger fluctuations in consumption)

Z 10% of Inventory Value (completely irregular consumption)


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Selective Control

TechniqueBasis of classification Chief Use

ABC Consumption value Controlling RM, WIP and components

XYZ Value of item in storage Reviewing the inventories & other uses

FSN Consumption rate of item Controlling obsolescence


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APM theory

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