Activity: ABC by hand, then by a second criterion
Chapter 2, Managing Inventory
Work in pairs. 20 minutes.
Names: ______________________________________________
The storeroom. The turf-equipment plant’s maintenance storeroom carries the ten items below. Criticality is the maintenance supervisor’s rating of what a stockout stops, from 1 (nothing) to 5 (a production line).
| Item | Description | Annual usage \(\lambda\) | Unit cost \(c\) | Criticality |
|---|---|---|---|---|
| M-01 | Hydraulic oil, 55 gallon drum | 60 | $700.00 | 3 |
| M-02 | Welding wire, 33 pound spool | 240 | $55.00 | 3 |
| M-03 | Paint booth filter | 1,500 | $7.00 | 2 |
| M-04 | Press die spring set | 4 | $1,450.00 | 5 |
| M-05 | Safety gloves, pair | 2,400 | $1.50 | 1 |
| M-06 | Conveyor drive belt | 8 | $330.00 | 5 |
| M-07 | Grinding disc | 500 | $2.40 | 2 |
| M-08 | Robot weld tip | 300 | $3.00 | 4 |
| M-09 | Shop towels, bale | 40 | $15.00 | 1 |
| M-10 | Proximity sensor | 5 | $84.00 | 5 |
Part A. Predict
How many of the ten items do you expect to carry 80% of the annual dollar usage? Which item do you expect to rank first?
Part B. Rank, accumulate, cut
- Compute each item’s annual dollar usage \(\lambda c\), rank the items from largest to smallest, and accumulate.
- Cut at 80% and 95% of cumulative value, taking each class to end with the first item that reaches its cut. Report each class’s share of items and share of value.
- Sketch the cumulative curve on the grid.
Make a table with the columns Rank, Item, \(\lambda c\), Cumulative, Cumulative % and Class, one row per item.
Sketch on graph paper, with the cumulative share of items across and the cumulative share of dollar usage up, both from 0 to 100%, and the diagonal drawn in.
Part C. Add criticality
Score each item with equal weights, as in the chapter,
\[ \text{score}_i = 0.5\left(\frac{\lambda_ic_i}{\max_j \lambda_jc_j}\right) + 0.5\left(\frac{\text{criticality}_i - 1}{4}\right) \]
and rank by score. Keep the class sizes of Part B: the same number of items in A, in B and in C.
Make a table with the columns Rank, Item, Score, New class and Old class.
Which items moved, and in which direction? For each mover, is the new class the right outcome for the storeroom? Name one you would argue with.
Part D, if you have time. Three demand histories
Monthly issues over the past year:
| Item | Issues by month |
|---|---|
| M-03 | 120, 130, 125, 118, 127, 122, 131, 124, 126, 119, 128, 130 |
| M-04 | 0, 0, 1, 0, 0, 0, 1, 0, 1, 0, 0, 1 |
| M-08 | 0, 110, 0, 0, 10, 0, 120, 0, 0, 15, 0, 45 |
Compute \(\mathit{ADI}\) and \(\mathit{CV}^{2}\) of the non-zero sizes (\(s\) on \(n - 1\)) for each, and classify each as smooth, erratic, intermittent or lumpy, with the cuts \(\mathit{ADI} = 1.32\) and \(\mathit{CV}^{2} = 0.49\).
Exit ticket (tear off and hand in)
Name: ____________________
- Give one reason the 80% cut point is a choice and not a result.
- True or false, and why: an item in class C by dollar usage can safely be reviewed once a year.