ABC Analysis - Example of The Application of Weighed Operation Based On ABC Class

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.

Distribution of ABC class
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.

Application of Weighed Purchasing condition
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.

Comparison of "Equal" and "Weighed" Purchase (4 weeks span)
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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