Download - ABC & Xyz Analysis

Transcript
Page 1: ABC & Xyz Analysis

ABC & XYZ ANALYSISAhmed Atif, MMS(Operations)

Page 2: ABC & Xyz Analysis

Inventory ManagementDefinition: The planning and controlling of inventories in order to meet the competitive priorities of the organization Effective Inventory Management is essential for realizing the full potential of any Value Chain Inventories are important to all types of organizations and their employees and affect everyday operations because they must be counted, paid for, used in operations, used to satisfy customers and managed

Page 3: ABC & Xyz Analysis

Pressures of High and Low Inventory

If some critical inventories are not detained, there could be an administrative delay.

On the other hand, detaining inventories for a prompt availability can entail, in case of expensive and rarely used parts, high inventory holding costs.

Our aim is to find the right compromise between the two which is more economic.

Page 4: ABC & Xyz Analysis

Selective Control- Control by Exception

Uniform treatment of all items gives diffused effect and is also expensive

Various methods of classification are available. These are:

ABC- Emphasizes annual usage of materials XYZ- Emphasizes on inventory Value VED- Emphasizes criticality of the part HML-Utilizes price criterion FSN- Utilizes consumption pattern SDE- Relies on problems faced in

procurement

Page 5: ABC & Xyz Analysis

Classification of inventoriesTechnique Basis Main Use

ABC (always better control)

Value of Conception To control raw materials, components and WIP inventories in the normal course of business

HML (high, medium, low)

Unit price of the material Mainly to control purchase

XYZ Value of the items in storage

To review the inventories and their uses at scheduled intervals

VED (Vital, essential, desirable)

Criticality of the component

To determine the stocking level of spare parts

FSN (Fast moving, slow moving, non moving)

Consumption of pattern of the components

To control Obsolescence

SDE (Scarce, difficult, easy to obtain)

Problems faced in procurement

Lead time analysis and purchasing analysis

SOS (seasonal, off seasonal)

Nature of supplies Procurement/holding strategies for seasonal items

Page 6: ABC & Xyz Analysis

ABC Analysis

A --------Very ImportantB ---------Moderately ImportantC ---------Least Important

The actual number of categories may vary from org. to org.,

Items held in inventory are not of equal importance in terms of Rupees invested, profit potential, sales or usage volumes or stock out penalties.

The ABC approach classifies inventory items according to the measure of importance, usually annual $/Rupee usage (value multiplied by usage rate, and then allocates control efforts accordingly

Page 7: ABC & Xyz Analysis

A items should receive close attention through frequent reviews of amounts on hand and control over withdrawals where possible, to make sure that customer service levels are attained

C items should receive loose control (2 bin system, bulk order etc)

B items should be between A and C

Attention/Control

A Cat-egoryB Cat-egoryC Cat-egory

Page 8: ABC & Xyz Analysis

Statistics reveal that just a handful of items account for bulk of the annual expenditure on materials

A- 5 to 10% of the items account for 70-75% 0f the total money spent on materials

B- 10 to15% of total items represent 10-15% of total expenditure

C- 70 to 80% of the items represent 5-10% of total expenditure

Page 9: ABC & Xyz Analysis

Aspect Ratio Test

(Should appear circular)

16x9

A ItemsA Items

B Items

C Items

ANNUAL

RUPE E

VOLUME

HIGH

LOW

NUMBER OF ITEMSFEW MANY

Page 10: ABC & Xyz Analysis

Other Uses of ABCUsed by managers in many different settings to improve operations. One key way occurs in customer service where a manager can focus attention on the most important aspect of customer service by categorizing different aspects of customer service as very important, important or of only minor importance

Page 11: ABC & Xyz Analysis

Example Table on the next slide gives the

description, annual consumption, and price per unit of 20 items in the inventory of a Chemical company.

Page 12: ABC & Xyz Analysis

Item Description

Annual Consumption

Cost per unit (Rs)

Nitric Acid 4000 10/lit

Xylene 600 10/kg

Drums 2000 16/No

Paraffin wax

3500 1/kg

Biolac 50 8/kg

Methylene Chloride

6000 6/kg

Ethyl A 2400 5/kg

D spent 4200 1/lit

Handrast 50 10/kg

Castor OIL 100 7/kg

Item Description

Annual Consumption

Cost per unit (Rs)

Camphor 80 40/kg

Easter gum

50 8/kg

Amyl A 20 10/kg

Cartons 2000 0.15/pc

Linseed Oil

30 6/kg

Talc Powder

80 0.25/kg

Red Oxide 200 0.5/kg

Toulene 750 4/kg

Butyl Acetate

350 6/kg

Alstat 20 10/kg

Page 13: ABC & Xyz Analysis

Step 1

Determine the annual usage of each item for the past one year

Annual Usage=Annual consumption X Price per unit

(Rs) (Units) (Rs)

Page 14: ABC & Xyz Analysis

Item Descriptio

n

Annual Consumpti

on

Cost per unit (Rs)

Annual Usage (Rs)

Nitric Acid

4000 10/lit 40000

Xylene 600 10/kg 6000

Drums 2000 16/No 32000

Paraffin wax

3500 1/kg 3500

Biolac 50 8/kg 400

Methylene

Chloride

6000 6/kg 36000

Ethyl A 2400 5/kg 12000

D spent 4200 1/lit 4200

Handrast

50 10/kg 500

Castor OIL

100 7/kg 700

Item Descriptio

n

Annual Consumpt

ion

Cost per unit (Rs)

Camphor

80 40/kg 3200

Easter gum

50 8/kg 400

Amyl A 20 10/kg 200

Cartons 2000 0.15/pc 300

Linseed Oil

30 6/kg 180

Talc Powder

80 0.25/kg 20

Red Oxide

200 0.5/kg 100

Toulene 750 4/kg 3000

Butyl Acetate

350 6/kg 2100

Alstat 20 10/kg 200

Page 15: ABC & Xyz Analysis

Step 2

Rank from 1 to 20 each material according to the amount of annual usage- 1 being assigned to the material with highest cost, 20 being least

Page 16: ABC & Xyz Analysis

Item Description

Annual Usage (Rs)

Rank

Nitric Acid

40000 1

Xylene 6000 5

Drums 32000 3

Paraffin wax

3500 7

Biolac 400 13

Methylene Chloride

36000 2

Ethyl A 12000 4

D spent 4200 6

Handrast 500 12

Castor OIL

700 11

Item Description

Annual Usage (Rs)

Rank

Camphor 3200 8

Easter gum

400 14

Amyl A 200 16

Cartons 300 15

Linseed Oil

180 18

Talc Powder

20 20

Red Oxide 100 19

Toulene 3000 9

Butyl Acetate

2100 10

Alstat 200 17

Page 17: ABC & Xyz Analysis

Step 3

Arrange in Ascending order of their rank

Page 18: ABC & Xyz Analysis

Item Description

Annual Usage (Rs)

Rank

Nitric Acid

40000 1

Methylene Chloride

36000 2

Drums 32000 3

Ethyl A 12000 4

Xylene 6000 5

D spent 4200 6

Paraffin wax

3500 7

Camphor 3200 8

Toulene 3000 9

Butyl Acetate

2100 10

Item Description

Annual Usage (Rs)

Rank

Castor OIL 700 11

Handrast 500 12

Biolac 400 13

Easter gum

400 14

Cartons 300 15

Amyl A 200 16

Alstat 200 17

Linseed Oil

180 18

Red Oxide 100 19

Talc Powder

20 20

Page 19: ABC & Xyz Analysis

Step 4

Classify70% usage- A category20% usage- B category10% usage- C category

Page 20: ABC & Xyz Analysis

Analysis A Category items- Nitric Acid, Methylene

Chloride, B Category items- Drums, Ethyl A, Xylene,

Spent D C Category items- Rest all

Page 21: ABC & Xyz Analysis

Important Considerations All items that the company consumes should be considered

together while making ABC analyses Though generally annual consumption figures are

considered for ABC analysis, yet it is not necessary Though classification of items into 3 categories A, B, C is

adequate for control, yet if required the items can be classified into more than 3 categories like A, B, C1, C2, C3 etc.

Combinations of two techniques also possible. Eg ABC and VED, ABC and XYZ

Page 22: ABC & Xyz Analysis

XYZ analysis It is based on the value of inventory stored. X items are with high and Z are those whose inventory stock are low. Y are those which have moderate inventory stocks. Helps identifying items for which huge amount is locked up in stock

and hence can be reduced. XYZ can be combined with ABC analysis as given below

Class of items A B C

X Efforts to be made to reduce stocks to Z

Efforts to be made for reducing upto Y

Steps to be taken for disposing surplus stocks

Y Efforts to convert into Z category

- Control may be further tightened

Z - Stocks level may be reviewed twice a year

-

Page 23: ABC & Xyz Analysis

THANK YOUAny questions?


Top Related