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First and foremost, an ABC analysis is needed for all inventory categories.



All levels of the bill of material (that is, all part num­bers) must be classified as an A, B, or C item. This is done by multiplying the projected annual volume (or past usage) by the standard cost. This list is then sorted by dollar volume. A typical breakdown would be:

Class         $ Volume        No. of Units

A items              80%                         20%

B items              15%                         30%

C items                5%                         50%

For example: "A" items are 80 percent of the dollar volume and typically 20 percent of the part numbers. These ABC classifications are used to develop a

      Lot-sizing strategy

      Customer service strategy

      Safety stock (inventory strategy) at all levels

      Purchasing strategy at all levels

      Manufacturing, launch, and mix strategy.

These strategies provide the basis for business rules.



More plants do not have well-developed business rules for customer service. Without rules, sales expects every­thing to be always available. Customer service expecta­tions must be clearly defined. An example of business rules follow: A items:

      A items will be shipped same day—95% of time

      A items not in stock will be shipped in 5 working

B items:

      B items will be shipped same day—80% of time

      B items not in stock will be shipped in 10 working

C items:

      C items will be shipped same day—70% of time

      C items not in stock—will quote delivery


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