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A form of Pareto analysis applied to a group of products in order to apply selective inventory management controls. The inventory value for each item is obtained by multiplying the annual demand by unit cost and the entire inventory is then ranked in descending order of cost. However, the classification parameter can be varied; for example, it is possible to use the velocity of turnover rather than annual demand value.
The classification of inventory, after ABC analysis, into three basic groups for the purpose of stock control and planning. Although further divisions may be established, the 3 basic categories are designated A, B and C as follows:
A Items - An item that, according to an ABC classification, belongs to a small group of products that represents around 75-80% of the annual demand, usage or production volume, in monetary terms, but only some 15-20% of the inventory items. For the purpose of stock control and planning, the greatest attention is paid to this category of A-products. A items may also be of strategic importance to the business concerned.
B items - An intermediate group, representing around 5-10% of the annual demand, usage or production value but some 20-25% of the total, that is paid less management attention.
C Items - A product which according to an ABC classification belongs to the 60-65% of inventory that represents only around 10-15% the annual demand, usage or production value. Least attention is paid to this category for the purpose of stock control and planning and procurement decisions for such items may be automated.
Any item or element of inventory which has been used or sold within a given period. Often set at 12 months.
Aggregate Inventory Management.
The size of many inventories requires that they be broken down into groupings for the purpose of control. Aggregated inventory is the further collection of these groupings into a single entity to enable the establishment of operating policies, key performance indicators, targets and reports. Aggregate Inventory Management enables such things as the overall level of inventory desired to be established and then appropriate controls implemented to ensure that individual operating decisions achieve that goal, at optimum cost.
A part or product that has been reserved, but not yet withdrawn or issued from stock, and is thus not available for other purposes.
The last order for a particular product in the last phase of its life cycle. This order is of such a size that the stock provided will satisfy all expected future demand (see all time requirement below) for the product concerned. Sometimes known as a life of type order.
The total requirement for a particular product to be expected in the future. Normally used for products in the last phase of their life cycles, when production is (nearly) stopped.
The stock resulting from the assessment of an all-time requirement and delivery of an all-time order. If necessary, controls can be set for such stock to avoid consumption of items for reasons over and above those for which usage was predicted.
Inventory held in order to be able to satisfy a demand with seasonal fluctuations with a production level that does not fluctuate at all or that varies to a lesser extent than the demand.
The primary measure of system performance relating to the expected percentage of the supported system that will be available at a random point in time and not out of service for lack of spares.
The stock available to service immediate demand.
Available to Promise (ATP).
The uncommitted portion of a company’s inventory and planned production, maintained in the master schedule to support customer order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue.