Question

The Dynaco Company stocks a variety of parts and materials it uses in its manufacturing processes. Recently, as demand for its finished goods has increased, management has had difficulty managing parts inventory; they frequently run out of some crucial parts and seem to have an endless supply of others. In an effort to control inventory more effectively, they would like to classify their inventory of parts according to the ABC approach. Following is a list of selected parts and the annual usage and unit value for each:

Item number	Annual usage (items/year)	Unit cost ($)	Item number	Annual usage (items/year)	Unit cost ($)
1	36	350	16	60	$ 610
2	150	30	17	120	20
3	50	23	18	270	15
4	300	45	19	45	50
5	18	1,900	20	19	3,200
6	500	8	21	910	3
7	710	4	22	12	4,750
8	80	26	23	30	2,710
9	344	28	24	24	1,800
10	67	440	25	870	105
11	510	2	26	244	30
12	682	35	27	750	15
13	95	50	28	45	110
14	10	3	29	46	160
15	820	1	30	165	25

Required: Classify the inventory items according to the ABC approach using dollar value of annual demand. What recommendations would you give The Dynaco Company? (150 words)

Answer 1

Please refer to the excel image attached to the classification. The rules for classification are mentioned in the solved Excel images. Colored columns are cumulative percentages of by values and quantity.

Recommendation. The classification shows the Items according to their Importance. The very important items should be handled so as to ensure no stock-outs of those. Similarly, type C items are no so important which makes them less severe to losses due to stock-outs. Hence, keeping in mind the severity and importance of items a proper inventory handling mechanism can be devised.