 Weighed purchase

In comparison, when weighed purchasing policy is applied based on ABC class, for example C class
monthly (every four weeks) delivery with re-order point of three weeks' 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's supply, total number of delivery in 4 weeks will be (A 200×4=800)+(B 400×2=800)+(C
3,400×1=3,400)=5,000 and average inventory will be (A 75%×1.5weeks)+(B 15%x3 weeks)+(C
10%×3.5 weeks)=1.925 weeks' supply.

Comparison of "equal" and "weighed" purchase (4 weeks span)

Equal purchase Weighed purchase

% of
ABC No of
total No of No of note
class items average average
value delivery delivery
supply supply
in 4 in 4
level level
weeks weeks

same delivery
frequency, safety stock
2.5 1.5 reduced from 2.5 to 1.5
A 200 75% 800 800
weeks weeksa weeksa, require tighter
control with more man-
hours.

increased safety stock

level by 20%, delivery
2.5
B 400 15% 1600 800 3 weeks frequency reduced to
weeks
half. Fewer man-hours
required.

increased safety stock

from 2.5 to 3.5 weeks'
supply, delivery
2.5 3.5
C 3400 10% 13,600 3,400 frequency is one
weeks weeks
quarter. Drastically
reduced man-hour
requirement.

average inventory value

2.5 1.925
Total 4,000 100% 16,000 5,000 reduced by 23%,
weeks weeks
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 4,000 and average inventory level of A class item will be
1.5 days' supply and total inventory level will be 1.025 weeks' supply, a reduction of inventory by
59%. Total delivery frequency is also reduced to half from 16,000 to 8,200.

 Result
By applying weighed control based on ABC classification, required man-hours and inventory level
are drastically reduced.

 Alternate way of finding ABC analysis:-

The ABC concept is based on Pareto's law.[9] If too much inventory is kept, the ABC analysis can be
performed on a sample. After obtaining the random sample, the following steps are carried out for
the ABC analysis.

 Step 1: Compute the annual usage value for every item in the sample by multiplying the annual
requirements by the cost per unit.
 Step 2: Arrange the items in descending order of the usage value calculated above.
 Step 3: Make a cumulative total of the number of items and the usage value.
 Step 4: Convert the cumulative total of the number of items and usage values into a percentage
of their grand totals.
 Step 5: Draw a graph connecting cumulative % items and cumulative % usage value. The graph
is divided approximately into three segments, where the curve sharply changes its shape. This
indicates the three segments A, B and C.