ABC ANALYSIS

 

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

 

Recommendations

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.

CUSTOMER SERVICE LEVEL 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
days

B items:

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

•      B items not in stock will be shipped in 10 working
days

C items:

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

•      C items not in stock—will quote delivery