ABC ANALYSIS…….…. . ALWAYS bETTER CONTROL.ALSO KNOWN AS PVA( ( AND SIM TECHNIQUE(SELECTIVE INVENTORY CONTROL)DIVIDES INVENTORY INTO THREE CATEGORIES-A,B AND C ……ON THE BASIS OF THEIR ANNUAL CONSUMPTION VALUE….!!!objective= is to vary expenses associated with mantaining appropriate control.THIS IDEA HAS DRWAN FROM VILFREDO PARETO ,an italian economist…
it categorises the inventory into a,b,c classes acc to the potential amount to be control. After classifieng….. the firm decide where to put efforts.. mainly strong control on a items. Moderate control on B ITEMS LOOSE CONTROL ON C ITEMS.
Procedure for abcanalysis:1. List each invenotry item with number2. Determine the annual volume of usage and rupee value of usage.3. Multiply each item of annual volume usage with rupee volume,4. Calculate each item’s percentatge of total inventory on terms of the usage.5. Categorize===== “A “ to 10% of all ites with high %6. “B”20% of all items with high %7. “c” rest of all 70% of all the items
Example:Inventory item Annual use (iin rs % of total classification inventory usage1 3000 1.332 4000 1.773 6000 2.664 2000 0.885 10,000 4.44 B6 18,000 8 A7 5000 2.228 12000 5.33 B9 1000 0.4410 2000 0.88Total 10 items Total=2,25,000 REST ALL ARE IN C CATEGORRY
ITEMS IN A ITEMS IN B ITEMS IN CITEM NUMBER 6 5 AND 8 NUMBER ITEM ITEM NUMBER=.1,2,3,4,7,9,10•VERY STRICT CONTROL 1. MODERATE 1.LOOSE CONTROL•HANDLED BY SENIOR CONTROL 2.HIGH SAFETY STOCK•MAXIMUM EFFORTS TO 2. LOW SAFETY 3.BULK ORDERING CANREDUCE LEAD TIME 3. ORDER ONCE IN 3 BE MADE•ACCURATE FORECAST MONTH 4 ROUGH ESTIMATE•NO SAFETY STOCK 4. QUATERLY REVIEW 5 REVIEW•WEEKLY CONTROL 5. MODERATE EFFORTS ANUALLY,QUATERLYSTATEMENTS 6. ESTIMATE BASED ON 6 MINNMUM EFFORTS PAST DATA
2.EOQ MODEL (ECONOMICORDER QUANTITY) WHAT SHOULD BE THE SIZE OF ORDER???????TECHNIQUE SOLVE THE PROBLEM OF THE MATERIAL MANAGER…!!! CARRYING COST+ ORDERING COSTA MATERIAL MANAGER TORN BETWEEN THE KEEEPING LOW INVENTORY BY ORDERING IN SMALL QUANTITY AND BY DESIRE TO REDUCE COST BY BUYING LARGE QUANTITY…
PROCEDURE FOR CONSTRUCTIN THEMODEL :1. DELEVELOP A FUNCTIONAL RELATIONSHIP B/W THE VARIABLES OF INTEREST AND MEASURE THE EFFECTIVENESS,,,BY THIS: TOTAL COST=ANNUAL PURCHASE COST+ANNUAL ORDERING COST+ANNUAL HOLDING COST TC=DC+D*S/Q+Q*H/2WHERE:TC=TOTAL COST,D=DEMAND,C=PURCHASE COST PER UNIT,Q=QUANTITY TO BE ORDER,S=COST OF PLACING AN ORDER,H=HOLDING COST PER UNIT OF AVRG INVENTORYI=COST OF CARRYING INVENTORY AS PERCENTAGE.
2. CALCULATE ORDER QUANTITY,Q,FOR WHICH TC IS MINIMUM,(TOTAL COST IS MINIMUM AT THE POINT WHERE ORDERINGCOST AND CARRYING COST MEETS. OR EQUAL. DS/Q= QH/2 EOQ ORWHERED= DEMAND,S=COST OF PLACING AN ORDER,H= COST OF PLACING AN ORDER
LETS REPRESENT EOQGRAPHICALLY……!!—A POINT WHERE CARRYING COST CURVE AND ORDERING COST MEET REPRSENT THE LEAST TOTAL COST WHICH INCIDENTALLY THE ECONOMIC ORDER QUANTITY….
WEAKNESSES OF EOQERRATIC USAGESCOSTLY CALCULATIONFAULTY BASIC INFORMATIONEOQ ORDERING MUST BE TEMPERED WITH JUDGEMENTNO FORMULAE IS SUBSTITUTE FOR COMMONSENSE.
3)Order point problem(reorderlevel) At what level shoud the order be placed??? if inventory level is high -------block the capital….!!! If the level is toooooo low--------disturb production…..!!! So……. Efficient mgt of inventory NEEDS to maintain optimum inventory level…! Where there is no stock out and cost are minimum…!!!!
1. Minimum level:--- need to be maintained for smooth production. how to fix min level??????first need to know… lead time…(taken to receive the delivery aftr placing order wwith suplier.,,,). Consumption rate (based on past experience & production plan) material nature…(requirement of material=whaethr for special or regular production)
Formula for calculating minmimum stock level= re order level-(normal usage*avrg delivery time)
2.Re-order level: Is the level of stock at which the order should be placed. For replenish the current stock . Lies btwn minimum stock level and maximum stock level.Lead time avrg daily usage reorder point.(above is on asumption that the usage is consistent and lead time is fixed))))
3.Maximum level: level of stock beyond which the firm should not maintain the stock. stock Beyond maximum level is called overstocking.Serves as a safety marginExcess inventory cause.. high cost..!! blocks firms capital fundsMaximum stock level= reorder level+ re order quantity - ((minimum usage *minimum delivery time))
Safety stock-Prediction of avrg daily usage.& lead time is difficult……No doubt…. The raw material varies…. Day to day…!!!!! Re order point= lead time* avrg usage+safety stock