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ABC System/Selective Control System Homework Help, Tutoring
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ABC System/Selective Control System

     Economy in purchase is the striking point to consider while acquiring materials. All the items of stocks are classified into three classes –‘A’, ‘B’ & ‘C’, in order to achieve economy. Items which are small in number but require heavy investment are indicted by ‘A’ where as items which are large in number but for which not much total investment is required are indicated by ‘C’ & items between ‘A’ & ‘C’ are indicated by ‘B’ i.e. in ‘B’ no of items is less than that in ‘C’ but more than that in ‘A’ & the total investment in ‘B’ is less than that required in ‘A’ but more than that required in ‘C’.

    Stock of ‘C’ items may be acquired for a year since the investment in ‘C’ items is not large. Thus the cost of placing orders & receiving materials will be saved. In case of ‘B’ items, as & when the stock reaches the ordering level, the orders may be placed. Order for 4-5 months consumption could be placed if the stock is proportionately low. So far as ‘A’ items are concerned, the exact quantity of each order economically justified (known as Economic order quantity or EOQ) is necessary to be worked out. This way it is possible to control selectively the purchase of material. It is obvious that stock of ‘A’ items needs to be controlled more cautiously than that of ‘B’ items & ‘C’ items. The above indicated system of classification & control of materials is known as ABC system.

Just –in-Time Inventory (JIT Inventory)-

      For the purpose of reducing cost of inventory control & control of purchase & supplies for production without running any risk that bottleneck will be created in the production flow, the concept of just-in-time has been introduced. The safety stock is eliminated & the inventory level is aimed at lowering to the absolute minimum.

    The delivery of materials & components must have to be ensured as & when they are needed for the purpose of fulfilling the above aims & objectives. To ensure that not much time is lost between placing the order & the actual supplies, the suppliers of materials & components need to be in close contact with the buyer. Guarantee for supply on time should be there on the part of the suppliers. The on-time delivery should not be the only criteria, the maintenance of the quality of the materials & components is needed & the prices have to be kept within the reasonable limits. To achieve the objectives, long term contracts with the suppliers are needed.

    Therefore, ensuring co-ordination & synchronization of all operations starting from placing of demand to suppliers, receipt of supplies from suppliers, issues being made to production, required by just-in-time inventory.
    Excessive inventory cover is considered unnecessary since ensuring of supply of materials & components on time is there.

    Just-in-time purchase is involved in just-in time inventory i.e. as & when needed; purchase should be made for the purpose of ensuring delivery just before use. No inventories to be held at all, in the extreme case of just-in-time inventory. On demand-pull basis, production process goes on smoothly.

Just-in-time inventory concept aims at providing the following advantages:

  1. Achievement of drastic reduction in investment of inventories.

  2. Substantially reduction of total cost of operation.

  3. Maintenance, with the help of quality control system, of the quality of materials & components.

  4. To the maximum, storage cost can be saved.

  5. Loss due to evaporation, deterioration, obsolation, sublimation, pilferage, theft can be brought to the minimum.

  6. Reduction of cost of inventory.

  7. With the help of long-term contracts with the suppliers, the prices of materials & components can be kept within limits.

  8. If on time supplies guarantee is given by the suppliers, then production flow can be maintained un-interrupted.

The following disadvantages may also come up:

  1. Stoppage of production will result from a break in the flow of supplies even for a very short time.

  2. The production may be spoiled or could be stopped due to un-intended wrong supply.

  3. If the reliability of suppliers is in question, then the concept cannot be applied in practice.

  4. At every moment, requirement is to be carefully assessed & ordered for. Continuous vigilance on the operations is needed.

  5. In off season the materials produced seasonally may be scarce in the market, rendering on time delivery regularly becomes very difficult on the part of the suppliers.  

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