Abc Analysis

C) Stock records:

Detailed records of goods reserved, received, ordered, issued and on hand need to be maintained for ‘A’ class items.

Tight and accurate controls are required for such items.

No such detailed records are necessary for the ‘C’ class items. Any routine method that ensures good and accurate records is enough for ‘B’ class items.

(D) Priority treatment:

Top priority may be accorded to ‘A’ class items in all activities such as processing of purchase orders, receiving, inspection, movement on the shop floor, etc., with an object to reduce lead time and average inventory.

No such priority is necessary for B class items. Normal plant procedures should take care of inward and outward flow of these items.

No priority is assigned to C

Safety stock should neither be too high or too low.

‘C’ class items on the contrary, should have sufficient safety stock to eliminate stock-outs.

(G) Value analysis

To secure maximum benefits, it is essential to select those items for value analysis which offer the highest scope for cost reduction.

Advantages of ABC analysis:

1. Closer and strict on those items which represent a major portion of total stock value.

2. Investment in inventory can be regulated and funds can be utilized in the best possible manner.

3. Saving in stock carrying costs.

(II)Economic order quantity:

The economic order quantity refers to the quantity ordered to be purchased at the lowest total cost. This is the most economical purchase quantity which maintains a balance between two opposing costs of procurement and carrying. The economic order quantity is also known as economic lot size. So, the quantity to be ordered at a time is determined by the cost of procurement and the cost of carrying the inventories. The EOQ will be the one where the costs of procurement and the cost if carrying are equal. At this point the total cost is minimum. It can be graphically illustrated in the

IV.JUST IN TIME SYSTEM

It refers to the preoccupation of manufactures with inventory. Literally, the term suggests a system in which products are made ‘just in case’ they are needed. While it is an overstatement; it serves a useful purpose in highlighting the anomalies of traditional western manufacturing methods.

The just-in-time inventory system, while conceptually very appealing, is difficult to implement because it involves a significant change in the total production and management system. It requires inter alia (1) a strong and dependable relationship with suppliers who are geographically not far off from the manufacturing facility, (2) a reliable transport system, and (3) an easy physical access in the form of adequate doors and conveniently located docks and storage areas to dovetail incoming materials to the needs of assembly line.

Under the just-in time inventory systems, a concentrated effort is made to lower the ordering cost and also the safety stock by forging a stronger relationship with the supplier. As a result, both the components decline and this means that the average inventory level is lower. (just-in-time) process in HMIL is followed by 50%