Inventory Control Guide Page 39
ADVERTISEMENT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
405. Multiproduct Systems: ABC Analysis
Here we consider the classical case of a company with many different products and
components to manage. Before trying to define any inventory control policy, the first step is to
conduct an ABC analysis (also called Pareto analysis) which aims at determining where the
money is spent. Such an analysis is required to determine on which product you will spend
your effort improving the inventory control.
1. Select a discriminating characteristics
ex.: demand volume / sales volume / profit volume
When dealing with inventories, the sales volume is a good criterion.
2. Rank the products according to this characteristic
ex.: product 1 has the highest sales volume;
product 2 has the second highest sales volume; ...
3. Plot the cumulative curve :
x : products 1, 2, ...
y(x) = sum of sales volumes for the product 1 to x
ABC curve
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Usually:
20% of the products (the A products) generate 80% of revenue;
50% of products (the A and the B products) generate 95% of revenue;
the last 50% of the products(the C products) generate the last 5% of revenue
4. Classify the products into classes A, B and C.
The idea is to spent more attention (and thus money) to the control of A products.
5. Give decreasing attention to the products
Use then the most expensive control (permanent review) for the A products, and maybe only a
periodic review for the B and C products.
Prod 2100-2110
Inventory Control
38
ADVERTISEMENT
0 votes
Related Articles
Related forms
Related Categories
Parent category: Education