8/3/2019 Selective Inventory Control Techniques

1/15

Vishakha Sali

8/3/2019 Selective Inventory Control Techniques

2/15

8/3/2019 Selective Inventory Control Techniques

3/15

Similar to ABC analysis except for the differencethat instead of usage value, price criterion isused

Items are categorized into 3 groups dependingon their price High, Medium and Low

To classify, items are listed in the descendingorder of the unit price

The cut off lines are then decided by themanagement for the 3 categories

8/3/2019 Selective Inventory Control Techniques

4/15

For eg: for unit prices ranging from 1000to 10, the management may decide thatitems having unit price between 1000 to500 are to be categorized into H category

Items with unit prices from 500 to 100 areto be categorized in M category

And items with unit price less than 100are to be categorized in L category

8/3/2019 Selective Inventory Control Techniques

5/15

1. Assess storage and security requirements - high priced itemsto be kept under security

2. Keep control over consumption at departmental head levelindents of high priced items will be authorised only by dept

heads and tight control over wastage of H category items

3. Determine frequency of stock verification stock taking forH class items is more frequent than that for M and once in awhile for L class items

4. To evolve buying policies to control purchases excess

supply than the qty ordered cannot be accepted for H and Mclass but can be acceptable for L class items

5. To delegate authorities to different buyers to make pettycash purchase. H and M class items are normally purchased bysenior buyers while L items are bought by junior buyers

8/3/2019 Selective Inventory Control Techniques

6/15

VED analysis represents the classification

of items based on criticality

The analysis classifies the items into the

categories of Vital, Essential andDesirable

8/3/2019 Selective Inventory Control Techniques

7/15

Vital items encompass those items for want of

which production would come to a halt

Essential group includes items whose stock outcosts are very high

Desirable group comprises of items which do not

cause any immediate loss of production or theirstock out entail nominal expenditure and cause

minor disruptions for a short duration

8/3/2019 Selective Inventory Control Techniques

8/15

VED analysis is carried out to identify

critical items

An item which usage wise belongs to C-

category may be critical from production

point of view if its stock outs can cause

heavy production loss

8/3/2019 Selective Inventory Control Techniques

9/15

An item may be vital for a number ofreasons

If the non availability of the item can cause seriousproduction losses

Lead time for procurement is large

It is non standard item and is procured to buyersdesign

The sources of supply is only one and is located faroff from the buyers plant

8/3/2019 Selective Inventory Control Techniques

10/15

1. Identify the factors to be considered for

VED analysis commonly considered

factors are: effect on production (stock out

cost in event of non availability), lead time,

nature of the item and sources of supply

2. Assign points/weightages to the factors

according to the importance to thecompany. Typical examples of weightages

to above examples are 30,30,20,20

8/3/2019 Selective Inventory Control Techniques

11/15

Divide each factor into 3 degrees andallocate points to each degree.

Usually the first degree is assigned points

equal to the weightage of the factor, the 2nddegree is alloted points twice that of the

weightage and 3rd degree is alloted points 3times of the weightage

Prepare categorization plan which providesthe basis of classification of items into vital,essential and desirable categories

8/3/2019 Selective Inventory Control Techniques

12/15

Factor First Degree Second Degree Third Degree

Stock out cost in

the event of non

availability (30)

Above Rs. x

(30)

Between Rs. x to y

(60)

Above Rs. y

(90)

Lead time forprocurement (30)

1 4 weeks(30)

4 8 weeks(30)

Over 8 weeks(90)

Nature of the item

(20)

Off the shelf

availability (20)

Standard item

produced to

suppliers design

(40)

Non standard

item produced to

buyers design

(60)

Sources of Supply

(20)

Local (20) Outstation (40) Imported quota

item, i.e,

controlled supply

(60)

8/3/2019 Selective Inventory Control Techniques

13/15

4. Prepare categorization plan which providesthe basis of classification of items into vital,essential and desirable categories

5. Evaluate items one by one against eachitem depending on the extent of presence ofthe factor in each item

6. Place the items into V E and D categoriesdepending on the points scored by eachitem

8/3/2019 Selective Inventory Control Techniques

14/15

Points Classification

100 160 Desirable

161 230 Essential

231 300 Vital

8/3/2019 Selective Inventory Control Techniques

15/15