The document introduces VED analysis, an inventory management technique that categorizes stock into vital, essential, and desirable categories based on their functional importance to production. It emphasizes the need for strict control of vital items and outlines the costs associated with maintaining inventory, helping organizations optimize their inventory management decisions. The analysis aids in balancing investments in inventory and ensuring smooth production by minimizing stock-out risks.

1. VED ANALYSIS
DR.ANJALATCHI
M.SC(N)MD(AM) MBA(HA)

2. LEARNING OBJECTIVE
• To introduce the topic
• To define the VED analysis
• To list out the purposes of VED analysis
• To describe the method of VED analysis
• To explain the mixed method of ABC & VED analysis
• To understand the control method of VED analysis
• To summarize the topic
• To conclude the content
• To review the references related to the topic.

3. INTRODUCTION

5. DEFINITION OF VED ANALYSIS
• VED analysis is an inventory management
technique that classifies inventory based on
its functional importance. It categorizes stock
under three heads based on its importance
and necessity for an organization for
production or any of its other activities. VED
analysis stands for Vital, Essential, and
Desirable.

6. MEANING OF VED ANALYSIS

7. PURPOSE OF VED
• In a manufacturing organization, there are
number of items which are very vital or critical in
production.
• Their availability must be ensured at all times for
smooth production, so need to be strictly
controlled.
• Essential items follow vital items in their
hierarchy of importance.
• Desirable items are least importance in terms of
functional considerations , which are loosely
controlled at the lower level.

8. VED METHOD

9. CONTINUED

10. CONTINUED

11. IMPORTANCE OF VED ANALYSIS
• It is of utmost importance to any organization
to maintain an optimum level of inventory.
Maintaining inventory has its costs, and
hence, this analysis bifurcates inventory in
three parts to help in managerial decisions on
inventory maintenance. There are four types
of costs to maintain stock which are:

12. CONTINUED
Item cost
• This is the cost or price of the inventory items. It is the
actual purchase value of holding stock. Therefore, it will be
high with more inventory and vice-versa.
Ordering / Set-up Cost
• The purchase of inventory involves certain costs. These may
include transportation charges, packing charges, etc.
Holding Costs
• After the purchase of inventory items, there are a few costs
too. These may be related to storage, insurance charges of
stock or inventory, labor costs associated with the handling
of stock, etc. Moreover, it includes any damage, leakage, or
pilferage of the stock in hand.

13. CONTINUED
• Stock Out Cost
• These costs are the result of an inventory item running
out of stock. It includes loss of production due to a
spare part getting out of stock. Moreover, this may
delay the product sale. Also, the product itself may get
out of stock. Such losses are a part of the stockout cost.
• VED analysis is a crucial tool to understand and
categorize inventory according to its importance.
Because of it, the management can optimize costs by
investing more in the vital and essential categories of
stock and lesser in the desirable category of inventory.

14. MIXED METHOD

15. COUPLING MATRIX METHOD

16. MATRICX OF ABC AND VED ANALYSIS

17. EXAMPLE OF MATRIX MODEL

18. Control method of VED

19. Continued

20. SUMMARY
• Still now we have discussed about VED
analysis like introduction, definition, Purpose,
methods, classification, control method of
inventory system. I hope you all understand
about VED analysis and its significance.

21. CONCLUSION

22. REFERENCES

23. RESEARCH EVIDENCE