Classification of Materials. ABC classification which is the most popular method is discussed in detail. The other classifications like VED, combined ABC-VED etc. are also mentioned.

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Classification Of Materials

ABC Classification

Stockroom inventory is classified into categories called ABC.

* "A" - items are the highest priority, the tightest control, frequent deliveries, close follow-up, and accurate records. Planning and Scheduling these parts utilize MRP (Material Requirements Planning), DRP (Distribution Requirements Planning, or EOQ (Economic Order Quantity) or other lot sizing techniques such as Lot for Lot. 10 % of the "A" items volume accounts for 70% of the total inventory value

* "B" - items are the priority when low or out of stock. Normal control is used and good records are maintained. EOQ and other lot sizing methods can be used effectively with these items. "B" items account for 20% of the total inventory value, and 20% of the inventory volume.

* "C" - items are the lowest priority, simplest method of control. Min/Max used for ordering. These parts are usually expensed, as there are no records for them. These parts represent 10% of the total value, and 70% of the volume.

Managing Inventories by ABC:

ABC analysis is the method of classifying items involved in a decision situation on the basis of their relative importance. Its classification may be on the basis of monetary value, availability of resources, variations in lead-time, part criticality to the running of a facility, new customer partsunique to that product, and others.

Management needs to look at a descending dollar and volume chart in order to make decisionson ABC analysis. Once the top dollar items of usage are identified, and its corresponding volume.

Parts can be coded by the proper classification. Through this report ABC analysis can begin and recommended lists on stock codes, inventory levels to maintain, obsolescence recommendations, and discontinued items can be determined. A typical ABC analysis is shown in the following example:

From this example (KT Tire is a fictitious company, but the data is actual data derived from a client company),

"A" items represent 70% of the dollars and 8.61 % of the total volume of parts.

"B" items represent 20% of the dollars and 21.09% of the total parts.

"C" items represent 10%of the total dollars and 70.3% of the total part volume.

Cycle inventory can be managed through ABC analysis.

Once ABC items are coded in the file maintenance system, they are sorted by the ABC code. The CMMS randomly selects "A" items so that all can be processed typically in a two-month period, "B" items typically can all be processed in a six-month period, and "C" items can all be processed in a year period. The daily count would reflect this percentage of parts. For example, if a storeroom has 2000 parts in storage (Breakdown would be 100 "A" items counted monthly, 66 "B" items monthly, and 125 "C" items counted monthly), a typical daily selection to be counted would be 5 "A" items, 4 "B"items, and 7 "C" items, or a total of 16 items each day. When the computer count and the actual count disagree, a specific dollar value of tolerance is determined, before a decision is made for a second count. If, after the second count, there still is a discrepancy beyond the acceptable tolerance, a third count occurs. ABC management then also takes place in the investigation of the discrepancies.

"A" items, being the most valued, take the longest to investigate, with "B" second, and "C" last.

Once the investigation concludes, the inventory is adjusted. Management must sign off on the adjustment.

Other uses of ABC are in the management of storage areas by the storeroom manager.

"A" items must be watched and reviewed more closely due to its dollar value and importance to the facility.

Normally,

"A" items are stored at the lower levels of the bin.

"B" items are stored in the mid levels and are normally replacement parts that may not have the criticality or dollar value of the "A" items.

"C" items are stored in all other areas.

Insurance spares may be...
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