Feb 27 2014
A brief rant about the ABC’s | Bill Waddell
See on Scoop.it – lean manufacturing
“Apparently the folks writing about stratifying inventory into A, B and C items and building calculations of such into ERP packages didn’t get the lean memo.
Wikipedia is typical of such thinkers when they describe the ABC thought process as:
- ‘A’ items – 20% of the items accounts for 70% of the annual consumption value of the items.
- ‘B’ items – 30% of the items accounts for 25% of the annual consumption value of the items.
- ‘C’ items – 50% of the items accounts for 5% of the annual consumption value of the items.
The idea of micromanaging some items and slacking off on others based on purchase price is the very same theory they taught me at the University of Cincinnati back in the days when … ”
I agree with Bill that, from the point of view of manufacturing operations, the purchase price of materials is not the most important parameter. because the lack of a nail can prevent the completion of a product as effectively as the lack of a pump costing 1,000 times more.
It doesn’t mean, however, that classifying items to treat them differently is wrong, but it must be done by frequency of use rather than price, and I prefer to call the categories “Runners,” “Repeaters,” and “Strangers” rather than A, B, and C.
As a function of rank, I then look for the percentage of units actually built that can be fully assembled with only the items of this rank and higher. It starts at 0%, and, as long as it stays at 0%, I consider the items to be Runners, essentially items you can’t build any product without. At the other end of the spectrum, I call Strangers all the items without which you can make 95% of the units. And everything in-between is a Repeater.
Then you may decide, for example, to dedicate an easily accessible storage location to each Runner, and make special arrangements with suppliers. For Repeaters, you may use the Kanban system, with smaller dedicated locations. And you don’t keep any stock of Strangers, but order them as needed and store them, if at all, in dynamically allocated slots.
See on www.idatix.com
February 27, 2014 @ 10:14 am
Frequency of use is an important criterion for classification, whether ABC or runner, repeater, stranger is the name we give to the analysis. I also believe that reorder time is an important factor in deciding which category to assign a particular item, and consequently whether to keep stock or not. While this is obvious for the A and B items, more analysis will be needed for C items when the reorder period is equal to or greater than the presumed frequency of use. In some industries, e.g. fashion, scarcity or sudden rises in demand, May also dictate a more complex strategy.
February 27, 2014 @ 10:19 am
Michel:
Excellent observations.
I’m a big fan of ABC stratification but I don’t impose rigid limits based on spend or purchase price. I use many different factors including usage as well as “pervasiveness”, how often it is used or called for (similar to your runners) and I allow for management/user over-rides to the categorization to allow for criticality of the item.
I use ABC as a way to look at the overall inventory composition, how various segments perform and from that, a way to think about how to manage the various components. This factors into some of the things you suggest such as storage and how to replenish.
One other thing I do to categorize inventory is to create “product line/family groupings” for individual items. This is not something I have ever seen formally built into a system. Rather it gets done through iterative reporting and coding breaking down items based on the low-level code and pegging (terms we don’t hear much anymore). What you end up with is a record for each individual item as to where it is used within the overall product range.
Assume you manufacture 3 different product families (A,B and C) and each has lines within the family. Each end item would have a specific family line designation for example Family A, Line 1. However sub-assemblies and components would have broader definitions:
They could be:
* Family A, Line 1 if used exclusively in A – 1
* Family A, COMMON, if used in both A-1 and A-2 (or more lines if they existed in the family)
* COMMON – used across multiple families.
Since this information gets coded into a field in the item master, you can tell at a glance how pervasive the individual item is in the overall product structure.
Now back to the ABC codes. For common items, they would typically be A or B items since they tend to be widely used across the product lines.
Another off-shoot of this is the ability to “assist” the design people in new product development. One of the things I have observed when new products are being developed is to add/create new parts event though there may be an existing one already in the item master. Adding a new item when one exists is redundant and a wasted effort. This method can help.
February 28, 2014 @ 8:15 am
“I agree with Bill that, from the point of view of manufacturing operations, the purchase price of materials is not the most important parameter. because the lack of a nail can prevent the completion of a product as effectively as the lack of a pump costing 1,000 times more.” <- and this is a brilliant observation! That's exactly I would point out as first if someone wants to optimize costs. Kanban worked wonders in our company. Since the day we implement it we have reduced our costs by over 24%. I strongly recommend trying out kanban.