2. VALUE ((Annual demand X unit price))  ABC Analysis
(Always Better Control)
CRITICALITY (Vital, Essential, Desirable)  VED Analysis
USAGE FREQUENCY  FSN Analysis
(Fast moving, Slow moving, Non moving) A B C N S F V E D
USAGE FREQUENCY

3. Where, Average Annual usage =25 50 75 90
100 10
Percent of number of inventory items A B C
Percent of average inventory investment
Where, Average Annual usage =

4. OBJECTIVE OF ABC ANALYSIS Rationalization of Ordering Policies
EQUAL TREATMENT TO ALL
Item no.
Annual Consumption
Value (Rs.)
Number of Orders
Value per order
Average inventory 1 2 3
60,000
4,000
1,000 4
15,000
250
7500
500
125
Total Inventory: Rs. 8125
PREFERENTIAL TREATMENT on basis of ABC analysis 8
7,500
1,333
3750
667
Total Inventory: Rs. 4917
The optimum no of orders can be arrived at by using models of inventory control eg. EOQ
time
inventory
Annual cost Q*
Total cost
carriage
ordering
Q* =

5. Prob. of stock out
Total demand in lead time xL
+ kL
kL

6. % risk
Of shortage
(min)
(max) 
ABC
VED

7. decreasing
decreasing

8. ITEM A-class C-class B-class
Use EOQ and continuous monitoring
Order in lots of 3 months demand if stock at hand is less than ROP
Order in lots of 6 months demand if stock on hand is less than ROP
EOQ, q* =