Selective inventory control

Material Management - Stores, Purchase & Inventory Control
Selective inventory control methods

1. Material Management

Selective Inventory
Control

Presented by: RN Ankita Ashok Kadam
PGDHA II (2019-20)
Roll no. 04
GICED

2. Material Management

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Introduction
Inventory Control
Methods of keeping the inventories at approved & desired level
so that there is a balance between the carrying costs, capital, blocked
& production schedule.
Selective Inventory Control
Because of the large number of materials used in production at
many manufacturing plants, it is desirable to classify materials
according to the amount of analysis that can be justified.
Selective inventory control means that the method of inventory
control varies from item to item and the differentiation should be on
selective basis. Several techniques of inventory control are in use and
it depends on the convenience of the firm to adopt any of the
techniques.
The techniques more commonly used are the following
1. ABC Analysis
2. XYZ Analysis
3. HML Analysis
4. VED Analysis
5. FSN Analysis
6. SOS Analysis
7. GOLF Analysis

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Sr.
No.
Name Criteria
1. ABC
(Always Better Control)
Annual Value of consumption of
the items.
2. HML
(High, Medium, Low)
Unit price of the material.
3. VED
(Vital, Essential, Desirable)
The critical nature of
component or material with
respect to production.
4. SDE
(Scarce, Difficult to Obtain,
Easy to obtain)
Puchasing problems in regard to
availability.
5. GOLF
(Govt., Ordinary, Local,
Foreign)
It is the source from where the
material is obtained.
6. FSN
(Fast Moving, Slow Moving,
Non moving)
Criteria is issuing from stores.
7. SOS
(Seasonal, Off seasonal)
Criteria is Seasonality.
8. XYZ Inventory value of items, of
stores.

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ABC ANALYSIS

ABC Analysis popularly known as “Always Better Control” is a very
useful approach to material management based on Pareto’s principle
of “Vital few & trivial many” based on the capital investment of the
item.
ABC analysis, therefore, on the basis of cost and its consumption,
tends to segregate items into three categories as mentioned above.
Each category should be handled in a different way, with more
attention being devoted to category A, less to B, and least to C.
Category Label Quantity (%) Cost (%)
A Outstandingly Important 10 70
B Average Important 20 20
C Relatively Important 70 10

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 “80/20” rule ABC concept is applied to inventory management
as a rule-of-thumb.
 It says about 80% of the rupee value, consumption wise, of an
inventory remains availability of stock, are attained.
 The ABC concept is derived from the Pareto’s 80/20 rule curve
also known as the 80/20 concept.
 This rule, in general, applies well & is frequently used by the
inventory managers to put their efforts where greatest benefits,
in terms of cost reduction.
 ABC classifications allow the inventory manager to assign
priorities for inventory control.
 The ABC concept puts emphasis on the fact that every item of
inventory is critical & has the potential of affecting adversely
productions, or sales to a customer or operations.

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Suggested Policy Guidelines for A,B & C classes of items
A items
(High Cons. Val.)
B items
(Mod. Cons. Val.)
C items
(Low Cons. Val.)
Very strict control Moderate control Loose control
No or very low safety
stock
Low safety stock High safety stock
Phased delivery
(weekly)months
Once in three months Once in six months
Weekly control
report
Monthly control
report
Quarterly control
report
Maximum follow up Periodic follow up Exceptional
As many sources
possible
Two or more reliable Two reliable
Accurate forecasts Estimates on past data Rough estimate
Central purchasing/
storage
Combination
purchasing
Decentralized
Max. efforts to
control
Moderate Min. clerical
To be handled by Sr.
Officers
Middle level Can be delegated

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XYZ Analysis
 XYZ analysis highlights the ratio of stock versus consumption
to effect better stocking & reordering policy.
 XYZ analysis is calculated by dividing an item’s current stock
value by the total stock value of the stores.
 The items are first sorted on descending order of their current
stock value.
 ‘X’ items which are 10% of no.of items stored, but accounting
for 70% of the total inventory value.
 ‘Y’ items are 20% of no.of items stored and account for 20% of
total inventory value.
 ‘Z’ items are 70% of no.of items stored and account for 10% of
the total value.
Concept is to classify goods by the amount & cause of variance in
demand.

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HML classification
H- High M- Medium L- Low
 The HML classification is same procedure as adopted in ABC.
 The core difference is HML classification unit value is the
criterion and not the annual consumption value.
 The inventories should be place in descending order and it is
up to management to fix limits of these three categories.
 The HML analysis is useful for keeping control over
consumption at department levels, for deciding the frequency
of physical verification, & for controlling purchases.

VED Analysis
VED: Vital, Essential & Desirable classification

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 VED classification is based on the criticality of the inventories.
 Vital items – Its shortage may cause havoc & stop the work in
organization. They are stocked adequately to ensure smooth
operation.
 Essential items - Here, reasonable risk can be taken. If not
available, the plant does not stop; but the efficiency of
operations is adversely affected due to expediting expenses.
They should be sufficiently stocked to ensure regular flow of
work.
 Desirable items – Its non-availability does not stop the work
because they can be easily purchased from the market as &
when needed. They may be stocked very low or not stocked.
 It is useful in capital intensive industries, transport industries,
etc.
VED analysis can be better used with ABC analysis in the following
pattern
Items V E D
A Constant
control &
regular stocks
Moderate
stocks
No stocks
B Moderate Moderate Very Low
stocks
C High Moderate Low stocks

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FSN Analysis
Fast, Slow or Non-Moving Material Analysis
 FSN Analysis report brings out the list of dead material which
have not been used at all for quite some time and which should
be removed from the stores.
 This report is based on ratio of movement, which is relation of
the total issues during the period of a particular item to its
opening stock.
 To carry out an FSN analysis, the date of receipt or the last date
of issue, whichever is later, is taken to determine the number of
months, which have lapsed since the last transaction. The items
are usually grouped in periods of 12 months.
 FSN analysis is helpful in determining active items, which need
to be reviewed regularly, and surplus items, which have to be
examined further. Non-moving items may be examined further
and their disposal can be considered.
SOS ANALYSIS
Seasonal, Off Seasonal Report helps you to view seasonal required
items.
GOLF ANALYSIS
Government, Ordinary, Local, and Foreign Report help you to do
material analysis based on location and type of organization.

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References
 Lecture notes of Material Management by Dr Dilip
Mulchandani
 Slide share
 Images from Google