Page 187 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes Table 9.4: Comparison of Different Classification Systems

S. No. Title Basis Main Uses
1. ABC (Level of Usage) Value of consumption To control raw material components
and work-in-progress inventories in the
normal course of business.
2. HML (High, medium, low Unit price of the Mainly to control purchase.
usage) material

3. FSND (Fast moving, Slow Consumption pattern of To control obsolescence.
moving, Non-moving, Dead the component
items)
4. SDE (Scarce, difficult, easy Problems faced in Lead time analysis and purchasing
to obtain items) procurement strategies.

5. Golf (Government, Ordinary, Source of the material Procurement strategies.
Local, Foreign Sources)

6. VED (Vital, Essential, Criticality of the To determine the stocking levels of
Desirable) component spare parts.
7. SOS (Seasonal, Off- Nature of suppliers Procurement/ holding strategies for
seasonal) seasonal items like agriculture
products.

8. XYZ ( Value of Stock) Value of items in To review the inventories and their use
storage scheduled intervals.

Other similar types of classifications are the XYZ Classification, VED Classification, and the
HML classification of inventory. The basic difference between the ABC Classification and the
XYZ Classification is that it is based on the inventory in stock rather than usage.

VED Classification

The VED Classification is based on the criticality of the inventory item. In normal practice, items
in the ‘V’ category are often monitored manually; in addition to the computer monitoring that
may be in place.
V’ stands for vital, ‘E’ for essential, ‘D’ for desirable. This classification is generally applied for
spare parts to be stocked for repairs of machines and equipments based on the criticality of the
spare parts. The stocking policy is foundational on the criticality of the items. The vital spare
parts are known as capital or insurance spares. The inventory policy is to maintain at least one
number of the vital spare irrespective of the long lead-time necessary for procurement. Essential
spare parts are those whose non-availability may not harmfully affect production. Such spare
parts may be obtainable from many sources within the country and the procurement lead time
many not be long. Hence, a low inventory of essential spare parts is detained. The desirable
spare parts are those, which, if not presented, can be manufactured by the maintenance department
or may be procured from local suppliers and therefore no stock is held usually.

Did u know? What is HML classification?
The HML (High, Medium and Low) reflects a classification based on the unit price of the
item. Obviously, the ‘H’ category items require additional attention, especially if the lead
times are long, as it may often be in imported components. The ‘time’ triggered reorder
system has some advantages in production cycling, in such high value items.

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