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...