Selective Inventory Control Models

Abstract

Inventory control models reviewed till now require that each item held in the inventory system be given equal importance irrespective of their usage, criticality, cost, or any similar attribute. This would be extremely difficult in organizations that manage several thousands of items. During the time when computing resources were scarce, inventory managers devised methods to selectively control inventory items – focusing their effort more on items that are key to the organization, and applying lesser control on other items. In this chapter, some of these popular selective inventory control methods such as ABC analysis, VED analysis, and FSN analysis have been discussed with numerical examples. Each of these methods classifies inventory items into three groups (Some selective inventory control methods group inventory items into more than 3 groups.) and apply inventory management strategies around those groups. A hybrid method – that of combining the ABC and the VED techniques – has also been discussed. We also discuss an important multi-item inventory management technique that has EOQs as its basis – the exchange curve. This curve can help inventory managers identify an appropriate ratio of ordering cost to inventory carrying rate that can achieve a management-desired level (constraint) of inventory value.