The impact of not having critical stock items on board a vessel could range in severity form a minor delay in maintenance to a full-blown catastrophe. Key industry requirements and practised are employed to manage the stock items related critical equipment, which could be very expensive if not optimised. A variety of approaches can be utilized to categorise the stock items including Stock Risk Assessments, VED analysis or ABC Analysis. For this article, we will explore ABC categorisation in detail.
ABC Categorisation of inventory is a system used to achieve a high level of inventory control. The approach works on the concept of categorizing stock items into 3 distinct categories. Each of these categorise invokes a different approach to their management in the inventory systems.
The ‘ABC’ refers to the three categories used in the system. The A is the category for items that are extremely critical from either a regulatory perspective or also a financial cost. The B is the classification for items of average importance. Finally, category C is the designation for relatively unimportant items. Each of the categories are handled in a different way with the most attention devoted to category A items.
A standard approach is to apply pareto analysis to present an annual consumption value of approximately 80% of the total value of stock items against approximately 20% of the unique items held on board. The technique helps to identify the top portion of stock items that hold the highest value and once identified then other tools can also be used to identify the necessity of holding stock in each category. While this is referred to as the "80/20" rule, this ratio is merely a convenient rule of thumb. Therefore category A items can be considered in the top approximate 20% including any items that of the defines as stock related to critical or environmental equipment. Finally, categories B and C could make up the remaining approximate 80 per cent of the items. The annual consumption value is calculated with the formula: (Annual demand) x (item cost per unit).
The below graph illustrates spend distribution of Stock purchased.
- The top 2500 stock items represent 70% of the expense.
- The next 6500 stock items represent only 20% of the expense.
- The final 10000 Stock items represent a minimal of 10% of the expenditure.
Graph 1: Example of spend distribution of stock purchased
Inventory management approaches leverage the ABC categorisation and analysis to highlight the imbalance regarding the volume of items against their cost. This promotes a weighted management based on the items categories. For example:
A Category items require stringent inventory control including secure storage and frequent inventory counting. This also implies that a greater level of forecasting should be applied to these items based on an accurate account of the amount being consumed against the amount required on board.
B Category Items require monitoring of potential change of status to A or C status and should be part of a standard inventory control system.
C Category Items is made up of less critical and frequently consumed items. A typically inventory policy consist of having only having the minimum reorder quantity on-board, and of reordering only when below this limit.
The final goal of the above is to have a manageable approach to maintaining inventory beyond just categorisation and counting, but to strive for an accurate account of the stock on-board. Especially for the A and B Category items. Within AMOS Business Suite, we have the provision for categorisation and the ability for scheduling counts from a work order perspective. With the inventory application, the on-board inventory responsible will be enabled for a mobility perspective to conduct count directly at the location where the item are stored.
In a future series’ we will investigate the other inventory categorisation approaches and explore hidden befits to the supply chain including Demand Forecasting capabilities, Stock Item Pooling and Lead Time Analysis.
