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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
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % 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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