This document discusses classifying materials using ABC and VED analysis. It provides examples of how different classes of materials should be managed. Key points: - Class A items are few in number but high in cost, so purchasing should pay them extra attention to reduce costs. Class V items are vital to operations so purchasing and maintenance should focus on their availability. - Class C items are too numerous and low cost to closely monitor, so buying them once a year in bulk is sufficient. Inventory control systems are best suited to Class B items. Class V items also need close monitoring outside typical inventory control. - Pareto's principle applies to materials management, with 20% of items making up 80% of costs -

1. CHAPTER 22: ABC and Other Classification of Materials
Responses to Questions
1. Purchasing can give extra attention to A class items that are few but cost
more. Any cost reduction here will go a long way. It can also pay more
attention to V class items as they are vital to the running of operations.
Maintenance needs to pay attention to the availability of V and E class
items.
Quality has to be good for all classes of materials; but the quality
improvement process can start from the high individual cost A class items
and the Vital class items.
2. Classification gives us the relative priorities. ‘A’ class items are few and
high-priced. It would be prudent to monitor them closely rather than
depending upon a mechanical inventory control system. ‘C’ class items
are too many to control and costing too little to bother too much; hence,
many of these can be bought once a year and be done with. It, therefore,
seems that inventory control system has only ‘B’ class items to really
bother about.
As per the VED classification, ‘V’ class items need a close monitoring and
could really be out of the usual mechanistic inventory control system.
This is not to say that inventory control models, EOQs and safety stocks
are irrelevant. This input – the cost balancing input – is essential.
3. ‘Pareto’s Law’ says that 20 % of the things, generally, contribute to 80 %
effect. For instance, in any work situation, 20 % of the people contribute to
80 % of the productivity. While ‘Lorenz curve’ is not a ‘law’, it depicts the
same 20 – 80 behaviour. Not surprisingly, even in materials management
this 20-80 principle holds good. Note that 20-80 are just notional figures; it
only means to say that ‘few’ contribute to ‘most.’ Pareto’s law is silent
about 80 % of things/people contributing to much less than 20 % (‘C’ class
items). Whereas, ABC classification is more comprehensive while not
being so philosophical.
4. The answer to this question is already in the above answer.
5. Yes. The price usage and the importance of items might change and what
is V class might become the E or D class after a few years. What is A
class might become B class. Some others might be pushed upwards to V
and A classes. It is, therefore, essential to update the classification

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periodically. The frequency of updation depends upon the dynamics in the
market, technology and other environment.
6. Yes, VED analysis is situational; and is based upon one’s judgement as to
what is going to be ‘Vital.’ If a technology or process changes, a V item
may become just an E class item; similarly an E class item might get to be
a V class item. If substitutes are available in plenty, the V class item
ceases to be Vital and could even become just a Desirable (D class) item.
7. Refer to Question # 2 and its response.
8. ABC classification is precisely for apportioning a manager’s precious time
and decision-taking mental space. It helps in weeding out a large fraction
of items to be handled by mechanically laid out systems of control.
Manager can, then, attend to only a vital few.
9. ABC classification concerns the money value of the items in the inventory.
However, there could be other reasons for the importance of certain items
– reasons of source, reasons of location, of space, of criticality in use, etc.
Therefore, there are several demands on the materials manager’s time
and attention. People may be apprehensive of this one-way classification
based on monetary value. One may encounter several demands when
one starts the ABC classification process.

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Chapter 22: ABC & Other Classification of Materials
Objective Questions
1. If the materials are classified into ABC-VED matrix, you will fix the highest
service level for :
a. AV class items
b. CD class items
c. AD class items
√d. CV class items
2. If the materials are classified into ABC–VED matrix, you will fix the lowest
service level for:
a. AV class items
b. CD class items
√c. AD class items
d. CV class items
3. Pareto’s Law is akin to:
a. VED classification
√b. ABC classification
c. ABC-VED matrix classification
d. FSN classification
4. If 10 % of items contribute to 80 % of annual turnover, these items may be
classified as:
a. V class items
√b. A class items
c. C class items
d. D class items
5. If the non-availability of a spare part results in a large breakdown time, the
spare would most probably belong to:
a. A class of items
b. C class of items
√c. V class of items.
d. D class of items
6. The following class of items can be bought once in a year and stocked:
a. A class
b. B class
√c. C class
d. D class

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7. Inventory control systems are most useful for the following class of
materials:
a. A class
√b. B class
c. C class
d. V class
8. The classification of spare parts most useful for the maintenance function
is :
a. ABC
√b. VED
c. FSN
d. None of the above