![]() ![]() Perpetual counting of stock that’s not needed is wasteful.Cost-benefit makes perpetual count worthwhile.High facility costs (buffer level varies).Item condition may deteriorate while languishing in inventory.Stock levels will build up during periods of no demand, tying up working capital.The policies for A items in the company may be as follows:Īutomatically order annual demand / 12 each month. It may be that item 1002 is typically drawn off twice per year, but it is impossible to predict when during the year they will be drawn down. Using ABC analysis, their consumption values would be identical ($240,000) and may be classed as A items. Item 1002 costs $1,000 and demand is sporadic but typically 240 are drawn off each year.Item 1001 costs $10,000 and demand is reliable at two per month throughout the year.So two items with similarly high consumption values but very different patterns of demand may be subject to the same inventory management policies and process, which may not be appropriate. ![]() ![]() However, it takes no account of consumption volatility. ABC analysis helps set inventory management systems and processes based on the consumption value of stocked items.
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