Introduction: Motorcycles manufactured by India's Bajaj Group have attained the top position in recent years in the country's fast growing bike market beating the Hero Honda brand assembled and marketed by the state-owned Atlas Bangladesh Limited.
Different brands of Bajaj have market shares of around 30 per cent, Hero Honda nearly 22 percent, Dayun brands, supplied by Runner Automobiles, 17 percent and the TVS motorbikes come to the fourth position in the market. Bajaj's popular products are Pulsar 150, 135, Discover 100, 150, Avenger, Platina 100, 125 and Bajaj CT 100.
A total of 2, 30,000 pieces of motorcycles were sold in Bangladesh in 2010, sales growing at a pace of nearly 25 percent.
Problem Statement: I have noticed problems in the inventory management of Bajaj Collection which is a motorcycle showroom and a dealer of Uttara Motors Pvt Limited. Being a good and only showroom at Mohammadpur, Bajaj Collection is not being able to provide customers with the desired bike that the customers want. This problem is only because of their poor inventory management system. They don’t know exactly how to design their inventory so that customers can easily get the desired color or model of motorcycles. How to solve the problem: This problem of inventory management in Bajaj Collection can be solved by adopting ABC Classification System. If Bajaj collection designs the inventory according to some measure of importance and allocate control efforts accordingly then I think it will be possible to solve the problem.
What is ABC classification??
An Overview: By classifying your Inventory into A, B, C categories you can manage your Inventory in a more productive and economic manner through relaxed controls on low valued items whilst applying more stringent controls of high valued items. This cuts down the costs involved in checking every item - every time by applying greater emphasis on key items. Let us first address what we mean by ABC Classification. Whenever you mention ABC Class (almost simultaneously) people think of the rule of 80/20, or Pareto's Law. Pareto's Law is a concept developed by Vilfredo Pareto, a 19th century Italian economist, sociologist, and political scientist (he was actually schooled as an engineer). The law states that a small percentage of a group accounts for the largest fraction of the impact, value, etc. For example: 20% of the people have 80% of the wealth.
20% of the customers cause 80% of the disruptions.
20% of your employees generate 80% of the ideas.
This rule seems to apply to many things in life, as well as, managing your inventory. In the 1950's Pareto's Law was applied to management theory. The ABC principle basically states that managing a vital few will go a long way toward controlling the situation. Furthermore, the effort saved through relaxed controls on low valued items can be applied to improve control of high valued items. To understand the principle, you must first understand inventory value. Defining Value
Most firms measure inventory value in dollars and cents. The quantity on hand * the unit cost gives us the inventory value for each stock keeping unit. Financial types also desire to measure the movement, or velocity, of the inventory. To accomplish this, we typically use a ratio called inventory turnover. Inventory turnover is defined as the cost of goods sold divided by the average value of inventory. If your cost of sales is $1,500,000 and average inventory value $250,000, your turnover would be 6. Six turns in the electronics industry is a respectable number. The higher the number the better. A high turnover means that your company has been able to operate with a relatively small investment in inventory. It may also suggest that your inventories are current and stable; that since they have not been on the shelves too long, they probably contain few unusable items. To obtain a higher inventory turn, we need to reduce the average value of inventory in respect to...
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