ABC Vs just-in time analysis
MKT 202 ASSIGNMENT
ABC ANALYSIS
ABC Analysis is an inventory categorization method which divides items into three categories, A, B, C: A being the most valuable items, B being the average valuable items and C being the least valuable ones. Inventory analyzed under the ABC method is classified in order of profitability to the company, Class A inventory accounts for 80 percent of revenue, class B inventory for 15 percent of revenue and class C for 5 percent of revenue().The supply manager can thus identify inventory items that yields more revenue for the company and separate them from the rest of the items, especially those that are numerous but not that profitable.
When reviewing inventory, a company should rate items from A to C, basing its ratings on the following rules:
A-items are goods which annual consumption value is the highest. The top 70-80% of the annual consumption value of the company typically accounts for only 10-20% of total inventory items.
B-items are the interclass items, with a medium consumption value. Those 15-25% of annual consumption value typically accounts for 30% of total inventory items.
C-items are, on the contrary, items with the lowest consumption value. The lower 5% of the annual consumption value typically accounts for 50% of total inventory items.
The annual consumption value is calculated with the formula: (Annual demand) x (item cost per unit).
JUST IN TIME
Just in time is a pull (demand) driven inventory system in which materials, parts and support items are delivered just when needed and neither sooner nor later. Its objective is to eliminate product inventories from the supply chain. This enables the firm to produce only what is required, in the correct quantity and at the correct time. This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum.
ADVANTAGES
Lower stock holding means a reduction in storage space which saves rent and insurance
ABC ANALYSIS
ABC Analysis is an inventory categorization method which divides items into three categories, A, B, C: A being the most valuable items, B being the average valuable items and C being the least valuable ones. Inventory analyzed under the ABC method is classified in order of profitability to the company, Class A inventory accounts for 80 percent of revenue, class B inventory for 15 percent of revenue and class C for 5 percent of revenue().The supply manager can thus identify inventory items that yields more revenue for the company and separate them from the rest of the items, especially those that are numerous but not that profitable.
When reviewing inventory, a company should rate items from A to C, basing its ratings on the following rules:
A-items are goods which annual consumption value is the highest. The top 70-80% of the annual consumption value of the company typically accounts for only 10-20% of total inventory items.
B-items are the interclass items, with a medium consumption value. Those 15-25% of annual consumption value typically accounts for 30% of total inventory items.
C-items are, on the contrary, items with the lowest consumption value. The lower 5% of the annual consumption value typically accounts for 50% of total inventory items.
The annual consumption value is calculated with the formula: (Annual demand) x (item cost per unit).
JUST IN TIME
Just in time is a pull (demand) driven inventory system in which materials, parts and support items are delivered just when needed and neither sooner nor later. Its objective is to eliminate product inventories from the supply chain. This enables the firm to produce only what is required, in the correct quantity and at the correct time. This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum.
ADVANTAGES
Lower stock holding means a reduction in storage space which saves rent and insurance