Inventory Analysis and Selective Control Methods

By | November 12, 2013


For the successful spare parts management, it is essential to analyze the spare parts inventory based on various characteristics such as the frequency of issues, the annual consumption value, the criticality, the lead time and the unit price. This is essential as it would not be possible to exercise the same type of control for all items and it may not really be effective. Inventory analysis aids selection of policies for selective control.

Commonly used inventory analyses are:

(1) FSN Analysis

(2) ABC Analysis

(3) VED Analysis

(4) SDE Analysis

(5) HML Analysis

FSN Analysis: 

In the FSN analysis, the classification is based on the frequency of usage of the spare parts material.

F, S & N stand for fast moving, slow moving and Non moving items. This form of classification identifies the items frequently issued; less frequently issued for use and the items which are not issued for longer period, say, 2 years. For instance, the items can be classified as follows:

 Fast Moving (F) = Items that are frequently issued say more than once a month.

Slow Moving (S) = Items that are issued less than once a month.

 Non-Moving (N) = Items that are not issuedused for more than 2 years.

This classification helps spare parts management in establishing most suitable stores layout by locating all the fast moving items near the dispensing window to reduce the handling efforts. Also, attention of the management is focused on the Non-Moving items to enable decision as to whether they are required in the future or they can be salvaged. Experience shows that many industries which are more than 15 years old have more than 50% of the stock as non-moving spares.

Even if a few of them are disposed off and the locked up capital is made available, it will make available additional working capital to the organization. Action for disposal should be taken based on the value of each item of spare.

SDE Analysis:

In the SDE analysis, the classification is based on the lead time.

This classification is carried out based on the lead time required to procure the spare part. The classification is as follows:

 Scarce (S): Items which are imported and those items which require more than 6 months’ lead time.

 Difficult (D): Items which require more than a fortnight but less than 6 months’ lead time.

 Easily available (E): Items which are easily available i.e., less than a fortnights’ lead time.

This classification helps in reducing the lead time required at least in case of vital items. Ultimately, this will reduce stock-out costs in case of stock-outs. A comprehensive analysis may ultimately bring down lead time for more & more number of items. This will also result in streamlining the purchase and receiving systems and procedures.

VED Analysis:

In VED analysis, the classification is based on criticality:

Several factors contribute to the criticality of a spare part. If a spare is for a machine on which many other processes depend, it could be of very vital importance. Also if a spare is, say, an imported component for which procurement lead time could be very high it’s non- availability may mean a heavy loss.

Similarly spares required for fighter aircraft at the time of war could be of great value in terms of fighting capability. In general, criticality of a spare part can be determined from the production downtime loss, due to spare being not available when required.

Based on criticality, spare parts are conventionally classified into three classes, viz. vital, essential and desirable.

VITAL (V): A spare part will be termed vital, if on account of its non-availability there will be very high loss due to production downtime and/or a very high cost will be involved if the part is procured on emergency basis. In a process industry, most spare parts for the bottleneck machine or process will be of vital nature. For example, bearings for a kiln in a cement plant will be considered vital.

ESSENTIAL (E): A spare part will be considered essential if, due to its non-availability, moderate loss is incurred. For example, bearings for motors of auxiliary pumps will be classified as essential.

DESIRABLE (D): A spare part will be desirable if the production loss is not very significant due to its non-availability. Most of the parts will fall under this category. For example, gaskets for piping connection.

The VED analysis helps in focusing the attention of the management on vital items and ensuring their availability by frequent review and reporting. Thus, the downtime losses could be minimized to a considerable extent.

ABC Analysis:

In ABC analysis, classification is based on consumption.

Another method of classifying spares is on the basis of annual consumption value. As it is true for any inventory situation, Pareto’s principle can be applied to classify maintenance spares based on consumption value.

Pareto principle: The significant items in a given group normally constitute a small portion of the total items in a group and the majority of the items in the total will, in aggregate, be of minor significance.

This way of classification is known as ABC classification.

CLASS A: 10% of total spares contributing towards 70% of total consumption value.

CLASS B: 20% of total spares which account for about 20% of total consumption value.

 CLASS C: 70% of total spares which account for only 10% of total consumption value.

In a specific spares control system, it is quite possible that in a single year, many spares would not have been consumed at all. In such cases, it is better to perform

ABC analysis on longer consumption period data, say 3 years. Then only spares will not be left out in this classification.

Policy for ‘A’ items  

* Maximum control

* Value Analysis

* More than one supplier

* Control by top executives.

Policy for ‘B’ items

* Minimum control

* Bulk Orders

* More items from same supplier.

HML Analysis:

In HML analysis, the classification is based on unit price.

This classification is as follows:

 High Cost (H): Item whose unit value is very high, say, Rs.1000/- and above.

 Medium Cost (M): Item whose unit value is of medium value, say, above Rs.100/- but less than Rs.1000/-.

 Low Cost (L): Item whose unit value is low, say, less than Rs.100/-.

This type of analysis helps in exercising control at the shop floor level i.e., at the use point. Proper authorization should be there for replacing a high value spare. Efforts may be necessary to find out the means for prolonging the life of high value parts through reconditioning and repair. Also, it may be worthwhile to apply the techniques of value analysis to find out a less expensive substitute.

Read more:

Inventory management and its objectives.

Inventory management of Indian railways


5 thoughts on “Inventory Analysis and Selective Control Methods

  1. mujeres solteras

    Howdy! Would you mind if I share your blog with my myspace group?
    There’s a lot of people that I think would
    really enjoy your content. Please let me know. Thanks

  2. free minecraft games

    Its like you learn my mind! You seem to grasp a lot about
    this, like you wrote the ebook in it or something. I feel that
    you simply can do with some % to drive the message house a bit, however other
    than that, this is magnificent blog. A fantastic read.

    I will definitely be back.

  3. minecraft games online

    Thanks for another informative site. Where else could
    I get that type of info written in such a perfect
    means? I have a mission that I’m just now operating on,
    and I have been at the glance out for such info.

  4. Pingback: Inventory Control of Indian Railways | Cognited

  5. Pingback: Inventory Management and its Objectives | Cognited

Leave a Reply

Your email address will not be published. Required fields are marked *

− 1 = 1