As a manufacturing business, you would know that there are several ways for better inventory management. Each method comes with its benefits and fulfils a unique requirement. HML analysis in inventory management is one such method that focuses on the value of your products.
In this blog post, we will understand how you can optimize your inventory management with HML inventory analysis.
What Is HML Inventory Analysis?
HML analysis in inventory management is a method to organize products based on their unit cost. This method follows the Pareto principle, also known as the 80/20 rule.
Pareto's rule suggests that roughly "80% of the effects come from 20% of the causes. For manufacturing businesses, it means that 80% of a company’s revenue comes from 20% of products." This means that a small number of inventory items contain the most value.
HML analysis arranges your products into three categories: High, Medium, and Low, based on their unit costs in this method. It allows you to focus your attention. The goal is that you avoid overstocking and stockouts of the most important products.
How To Do HML Inventory Analysis?
HML inventory analysis is a simple process. Here is a step-by-step process for doing HML inventory analysis:
- The first step is to make a list of all the items available in your inventory and their costs.
- Organize these items in descending order (from highest to lowest) based on their unit costs.
- Calculate the total consumption value for each item by multiplying its unit cost based on the annual demand.
- Decide your cutoff points to arrange these items into three categories: High, medium, and Low.
- Put the most costly items in the High category, mid-range ones in the Medium, and cheapest items in the Low category.
- Make a chart to see each item according to its values and make informed decisions for inventory accuracy.
Benefits Of HML Analysis In Inventory Management
HML analysis in inventory management can provide many benefits by identifying high-value items. Here are the key benefits of HML analysis in inventory management.
1. Improved Inventory Management
When you conduct inventory analysis using the HML (high, medium, and low) method, you can quickly get the details of high-value inventory items. HML analysis in inventory management helps you keep enough inventory to avoid production delays. You can also avoid overstocking to reduce holding costs and carrying costs.
2. Better Resource Utilization
HML analysis in inventory management helps you use your resources for their maximum outputs. You can arrange resources where they are needed the most to fulfil your production target. It improves your operational efficiency and saves production costs.
3. Improved Purchasing Strategies
HML analysis of inventory control allows you to make informed decisions about your purchasing activities. It helps you identify which expensive items most affect inventory costs. You can reorder stock for valuable items when they are needed for production.
4. Controlled Supply Chain
Arranging inventory into HML (high, medium, and low) categories allows you to have better control over supply chain activities. You can keep perfect amounts of items in the medium and low categories. This helps you take quick action in situations like rush orders and unexpected issues.
5. Increased Customer Satisfaction
HML analysis in inventory management helps you improve order fulfilment. HML analysis allows you to make inventory adjustments according to customer orders and production plans. When you have organized inventory, you can reach production targets without delays. This increases customer satisfaction.
Various Applications Of HML Analysis Of Inventory Control
HML analysis in inventory management helps manage tasks with various applications. Let’s understand its applications that improve production planning, inventory accuracy, and financial management.
1. Optimizing Inventory Levels
You can utilize HML analysis to categorise items in your inventory based on their cost per unit. It gives you the flexibility to focus more on the most valuable items for your business. You can keep the security stock of these products to avoid interruptions in production as they contribute more to managing your inventory costs.
2. Improving Purchasing Decisions
HML analysis in inventory management can improve your purchasing decisions. It gives you an accurate figure of high-value items to medium and low-value items in your inventory. You can have several suppliers for high-value items to manage production. This will allow you to keep backups for high-value items to reduce holding costs.
3. Integrating With Other Systems
The HML analysis method can be integrated into systems like ERP and Inventory management software. The software can automatically arrange your products according to high, medium, and low categories. It can improve the efficiency of various departments of your business, such as inventory, production, and sales.
How To Implement HML Analysis In Inventory Management?
The implementation of HML analysis in inventory management is a simple process. Here are the steps to improve your inventory management system with HML analysis.
- Make a list of all the items in your inventory according to their unit costs, annual demand, and annual usage.
- Arrange the items on your list in descending order based on their costs. Put the highest-cost items at the top and the lowest-cost items at the bottom.
- Calculate the cumulative unit costs by adding up the unit costs of each item as you go down the list.
- Establish cutoff points to categorize products into three categories: High, Medium, and Low. Sort items into HML categories according to their unit costs.
- Draw a chart based on the cumulative unit costs of products. This chart will show the distribution of items according to the HML categories, helping you understand their importance.
Choose TranZact Inventory Management Software For HML Analysis
Make Your HML Inventory Analysis Easy With TranZact
HML analysis in inventory management helps you make informed decisions. TranZact allows you to improve your inventory management with HML analysis components. Using the simple interface of the TranZact dashboard, you can predict future demands for the most valuable items to prevent inventory shrinkage.
Sign up for the TranZact inventory management system now to fulfil orders on time and improve customer satisfaction.
FAQs
1. What is the difference between ABC analysis and HML analysis?
ABC analysis categorizes items based on annual usage values, and HML analysis arranges items based on unit cost.
2. How do you calculate HML analysis?
You can calculate HML analysis by making a list of inventory items, arranging them based on unit costs, calculating cumulative costs, and sorting them according to your cutoff points.
3. What is the analysis method of inventory control?
The analysis method of inventory control is arranging inventory items according to their value, usage, and cost.
4. What are the 4 techniques of inventory control?
The four techniques of inventory control are:
- HML Analysis
- ABC Analysis
- FIFO (First-In-First-Out)
- LIFO (Last-In-First-Out)
5. What is HML analysis in inventory?
HML analysis in inventory is arranging items into high, medium, and low categories based on unit cost.
6. What are the benefits of implementing HML analysis in inventory management?
Implementing HML analysis in inventory management can help you focus on the stock availability for the most valuable products to manufacture and fulfil orders without delays.
