Example of The Application of Weighed Operation Based On ABC Class
Actual distribution of ABC class in the electronics manufacturing company with 4051 active parts.
| ABC class | Number of items | Total amount required |
|---|---|---|
| A | 5％ | 70％ |
| B | 10％ | 15％ |
| C | 85％ | 15％ |
| Total | 100％ | 100％ |
Using this distribution of ABC class and change total number of the parts to 4000.
- Uniform Purchase
When you apply equal purchasing policy to all 4000 components, example weekly delivery and re-order point (safety stock) of 2 week supply assuming that there are no lot size constraints, the factory will have 16000 delivery in 4 weeks and average inventory will be 2.5 week supply.
| Uniform condition | Weighed condition | ||
|---|---|---|---|
| Items | Conditions | Items | Conditions |
| All items 4000 | Re-order point=2 week supply Delivery frequency=weekly |
A-class items 200 | Re-order point=1 week supply Delivery frequency=weekly |
| B-class items 400 | Re-order point=2 week supply Delivery frequency=bi-weekly |
||
| C-class items 3400 | Re-order point=3 week supply Delivery frequency=every 4 weeks |
||
- Weighed Purchase
In comparison, when weighed purchasing policy applied based on ABC class, example C class monthly (every 4 week) delivery with re-order point of 3 week supply, B class Bi-weekly delivery with re-order point of 2 weeks supply, A class weekly delivery with re-order point of 1 week supply, total number of delivery in 4 weeks will be (A 200x4=800)+(B 400x2=800)+(C 3400x1=3400)=5000 and average inventory will be (A 75%x1.5weeks)+(B 15%x3weeks)+(C 10%x3.5weeks)=1.925 week supply.
| ABC class | No of items | % of total value | Equal purchase | Weighed purchase | note | ||
|---|---|---|---|---|---|---|---|
| No of delivery in 4 weeks | average supply level | No of delivery in 4 weeks | average supply level | ||||
| A | 200 | 75% | 800 | 2.5 weeks | 800 | 1.5 weeksa | same delivery frequency, safety stock reduced from 2.5 to 1.5 weeksa, require tighter control with more man・hours. |
| B | 400 | 15% | 1600 | 2.5 weeks | 800 | 3 weeks | increased safety stock level by 20%, delivery frequency reduced to half. Less man・hour required. |
| C | 3400 | 10% | 13600 | 2.5 weeks | 3400 | 3.5 weeks | increased safety stock from 2.5 to 3.5 week supply, delivery frequency is one quarter. Drastically reduced man・hour requirement. |
| Total | 4000 | 100% | 16000 | 2.5 weeks | 5000 | 1.925 weeks | average inventory value reduced by 23%, delivery frequency reduced by 69%. Overall reduction of man・hour requirement |
a) A class item can be applied much tighter control like JIT daily delivery. If daily delivery with one day stock is applied, delivery frequency will be 4000 and average inventory level of A class item will be 1.5 days supply and total inventory level will be 1.025 week supply. reduction of inventory by 59%. Total delivery frequency also reduced to half from 16000 to 8200.
- Result
By applying weighed control based on ABC classification, required man-hours and inventory level are drastically reduced.
Read more about this topic: ABC Analysis
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