Methods of Classifying Stock

1. ABC Analysis
Relates to the annual usage cost of a particular item. Generally 10 per cent of items account for nearly 70 per cent of usage value, Another 20-30 percent may account for 20 per cent of usage value and the balance 60 – 70 per cent accounts for 10 per cent of the usage value. Items are classified as per their usage value. ‗A‘ items costs approximately 60 – 70 per cent of the total inventory cost while they are less in number. ‗B‘ items cost 20-30 per cent of the total inventory cost while ‗C‘ class items are greater
in number and carry less than 10 per cent of the cost of the entire inventory.

2. VED Analysis
Related to the Vital, Essential, and Desirable status of inventory items. As the term implies, certain parts and items are considered to be vital for meeting operational requirements and this aspect is taken into consideration while making a forecast. While making a forecast, certain items and parts, which are considered as vital for meeting operational requirements, are considered. The modified version of this is the ABC analysis. VED analysis, takes into consideration both the value and criticality of each item. Continuous review is necessary for high value and critical items and thus is ordered in low quantities. Low value, least critical items are reviewed periodically and ordered in large quantities and have lower safety stock requirements.

3. SAP analysis
Refers to Scarce, Available and Plenty analysis which allows to build into provision forecasts. The ordered quantity is governed by the scarcity factor. The guideline for procurement policy decisions would be the limitations in supply or the obsolescence of the firm in the near future.

4. FSN analysis
The Fast, Slow or Normal analysis determines the consumption pattern of each item. However, a realistic picture for procurement action will not be available from a consumption pattern where the production run is slowed down due to various other reasons.

5. SDE Classification
Classification based on the availability of an item. S items are scarce items, which needs to be imported and thus take a long time to obtain. D items are difficult to obtain, and E items are easily obtainable.

6. HML analysis
In this analysis, the classification of existing inventory is based on unit price of the items. They are classified as High price, Medium price and Low cost items. HML analysis is similar to ABC analysis except for the difference that instead of ‗‗usage value‘‘, ‗‗price value‘‘ criterion is used.

HML analysis helps to:
• Assess storage and security requirements
• To keep control over consumption at the departmental head level
• Determine the frequency of stock verification
• To evolve buying policies to control purchase
• To delegate authorities to different buyers to make petty cash purchase.

7. GOLF analysis
In this analysis, the classification of existing inventory is based sources of the items. They are classified as Government supply, Ordinarily available, Local availability and Foreign source of supply items.

8. SOS analysis
In this analysis, the classification of existing inventory is based on the nature of supply of items. They are classified as Seasonal and Off-Seasonal items.

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