Inventory and Demand Analysis February 12, 2006
Posted by Lawrence Loucka in : Lean Sigma, Logistics, Supply Chain , 2commentsABC Analysis can be used to assign the appropriate level of control and review frequency based on the annual dollar volume of each item. Classical ABC Inventory Analysis places:
- greater expenditure on supplier development for A items than for B or C items
- tighter physical control on A items than on B and C; cycle counting A items more frequently than C
- greater expenditure on forecasting A items than on B or C
- different replenishment or order policies for A items than on B or C
C items are often handled with simple techniques of min/max or reorder point. Some practitioners make the mistake of trying to apply kanban to either A or C items. What is missing is an understanding of demand linearity (or demand variability). ABC Analysis is typically based strictly on volume, or annual value. This approach would then treat both very predicable and highly volatile A items in the same manner. But one size doesn’t fit all… What’s missing is a little statistical understanding of the item demand pattern. Does consumption happen smoothly and regularly or are there big spikes in demand? When you take the standard deviation of the demand history and plot it against volume you get a demand segmentation like so … 