Inventory management is one of the most complex and challenging tasks for most industries. Many businesses need help maintaining updated records of inventory items and need to restock items in demand on time. It can result in a loss of business and damage your brand image.
In this article, you will learn about VED Analysis in Inventory Management and ABC Analysis. These are inventory management techniques that handle and simplify item records easily. They are important for the smooth working of the production process.
What is VED Analysis
VED analysis in inventory control is a method to check which items suit which category in inventory management. It is common to divide different items and tell how they operate. VED stands for are vital, essential, and desirable.
Importance of VED Analysis
VED inventory management is a technique that makes it easier for industries to adjust their inventory according to available resources and budgets. Here are some examples of why VED Analysis in important:
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Managing inventory levels: Manufacturing industries use VED analysis to manage inventory of raw materials. It helps this industry to guarantee the availability of items at all times.
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Managing capital: With the availability of raw materials which are important for production, manufacturers can deliver orders on time and also save capital in the process.
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Reducing holding costs: With better time management and enough inventory items in hand, VED analysis also reduces holding costs.
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Improving customer service: Every customer demands on-time services. With better time management and inventory items availability, VED analysis in inventory management also improves customer satisfaction.
How to perform VED Analysis
To get a clear understanding of your items, using VED analysis, you need to follow a standardized process. Here are the steps to perform VED Analysis:
1. Identify:
This includes inventory items such as raw materials, work in progress, finished goods, and other available items. You need to note all of these things and then move to the next step.
2. Classify:
Once you have understood all your inventory items, you need to classify them and understand them in detail. Here is how you can classify them:
- Vital Items: Vital items are important for smooth operations in any industry. These items are high value and have longer shelf life, and if they are unavailable, they can result in a delay in the process.
- Essential Items: Essential items are also important for production in the industry, but their absence does not cause any delays in production functioning.
- Desirable Items: These items are not important but are just nice to have. The items in this type can be promotional material that does not affect the functioning of the production line.
3. Consider
- The inventory items that are very important for the smooth functioning of the production line. It focuses on the inventory items that are important for the production. It is mostly about the usage of the item, not their value.
- The cost of stockouts. Most manufacturers face a loss of capital in case there are stockouts. It affects the whole production process. VED analysis maintains vital items in inventory which will reduce stockouts.
- Lead time of each item. With less stockouts, the lead time also decreases.
- Availability of substitutes. If manufacturers find difficulty in maintaining important inventory items, they find substitutes to replace them.
4. Develop inventory management strategies
The final step is to create unique inventory management strategies as items are classified and developed. Desirable items must be ordered when needed, and vital items should always be in stock.
Key Benefits of VED Analysis
- Improved inventory control and visibility
- Reduced risk of stockouts
- Optimized inventory costs
- Improved customer satisfaction
- Increased profitability
VED Method of Inventory Control
The VED Method of inventory control has its importance in the manufacturing industry. Here is an explanation of the VED Method of Inventory Control:
1. Vital Items
Vital items are important for the smooth running of operations in any industry. These items are high value and have longer shelf life, and if they are unavailable, they can result in a delay in the process. These things are specialized machinery and parts that are very important for production.
2. Essential Items
Essential items are also important for industry production, but their absence does not cause any delays in production management. These include medium value and have shorter shelf life than vital items.
3. Desirable Items
These items are not important but are just nice to have. The items in this type can be promotional material that does not affect the functioning of the production line.
Advantages of VED Analysis
Here are some advantages of VED Analysis in Inventory Management:
- Manages important items for the operations of a manufacturing business.
- VED analysis focuses on the use of inventory items, not their value.
- Reduces stock outs on essential products.
- Maintains adequate stocks of each item category, which reduces inventory overhead costs.
Disadvantages of VED Analysis
Here are some disadvantages of VED Analysis in Inventory Management:
- VED inventory control systems can take a lot of time and resources to handle in large inventory settings.
- It is a time taking analysis and is very complex in nature. However it ignores the value of items and focuses only on usage.
What is ABC Analysis?
ABC Analysis is an important inventory management technique for a business's inventory management. This is divided into three categories and has a difference in importance for the industry.
A Category
This category includes items that are most important for the company and need continuous monitoring. A Category includes items with high value and high sales frequency. It has 20% of the total inventory value but accounts for about 80% of total sales. This type of inventory item must always be in stock as it is in high demand and is high in value.
B Category
This category is less important than category A and has about 30% of the inventory value but gives only 15% of total inventory sales. It still needs regular inventory checks.
C Category
These categories have the least important items with over 50% of inventory value but generate 5% of total sales. A simple system can manage it and needs very little attention.
Advantages of ABC Analysis
Here are some advantages of ABC Analysis:
- Keeps the vital inventory items in check.
- Keep an eye on urgent needs.
- Monitors and maintains high-value items, thus reducing inventory holding costs.
- Maintains optimal stock levels for every item category to manage inventory levels.
Disadvantages of ABC Analysis
Here are some disadvantages of ABC Analysis:
- The value is fixed while it ignores the usage rate, only on its value.
- Large inventories can be time-consuming and challenging to handle.
- The relation between the cost of goods sold and the price of items is complex; however, this only sometimes stands.
Difference Between ABC and VED Analysis
| Criteria | ABC Analysis | VED Analysis |
| Focus | ABC analysis has main focus on value and usage frequency | VED analysis has main focus on Criticality and urgency |
| Categorization | ABC analysis has three groups: A, B, C | VED analysis in inventory management three groups: V, E, D |
| Inventory | ABC analysis is based on item value and usage frequency | VED analysis is based on item criticality and urgency |
| Decision-making | ABC analysis helps in ordering and stocking decisions | VED analysis in inventory management used for availability checks |
| Advantages | ABC analysis has effective resource allocation, optimized inventory management, improved customer service | VED analysis in inventory management offers priority-based management, cost optimization, risk mitigation |
| Disadvantages | ABC analysis overlooks factors beyond value or usage, relies on historical data, complex implementation | VED analysis in inventory management has simplified classification, subjective determination of criticality, limited consideration of dynamic factors |
| Example | ABC analysis example includes high-value items such as electronics | VED analysis examples includes life-saving drugs and medical equipment |
ABC vs VED analysis, which one is better?
Both ABC and VED Analysis of inventory control have their benefits and side effects. Your business and its purpose can help you select the correct type of inventory management technique. With various strategies and methods to manage inventory, each category can help you choose the correct inventory management software. ABC Analysis can reduce carrying costs and manage inventory better. It is better suited for industries with bigger stocks and higher carrying capacity. It's easier to use and offers an overall view of the annual cost. VED Analysis in Inventory Management is an important tool to understand complex inventory management. It is more specific and can be adjusted as per your unique needs.
Transform Your Inventory Management With TranZact
With this article, you understand that both techniques are quite different and have their importance. Most industries use multiple inventory management strategies to solve stock management problems. With TranZact, you can simplify and divide items into different types to understand their function. Industries can use the VED system of inventory control for specific needs, while ABC Analysis is suitable for the overall check of inventory items.
FAQs
What does VED stand for in inventory management?
The VED stands for Vital, Essential, and Desirable types of inventory items. VED analysis technique divides items into three groups based on their importance and functions. Vital are the most important items, and Desirable are not compulsory goods that add a nice touch.
What is the VED method of inventory management analysis?
VED method of Inventory management analysis is a technique that decides inventory in groups based on their needs. Vital items are most important, and their absence can affect production, while essential items are less important and Desirable items are much less valuable.
What is the purpose of ABC analysis?
ABC Analysis is a method to check which items are in high demand and have the most value overall. It helps industries to distribute funds and increase sales.
What Is An Example Of Ved Analysis?
The best example of VED Analysis is the medical industry. They are specific about their needs and require timely updates to guarantee vital items are always in stock.
What Is Ved Analysis Of Inventory Control Techniques?
VED analysis is a specific inventory control technique that decides inventory items based on their market value and demand. It is helpful to manage complex and bigger stocks.
What are the 4 techniques of inventory control management?
The four primary inventory management methods are as follows:
- Just-in-time management (JIT).
- Materials requirement planning (MRP).
- Economic order quantity (EOQ).
- Days sales of inventory (DSI).
What is the difference between ABC and VED analysis?
ABC Analysis can reduce carrying costs and manage overall inventory better. It is better suited for industries with bigger stocks and higher carrying capacity. It's easier to use and offers an overall view of the annual cost, while VED analysis is an important tool for understanding complex inventory management. It is more specific and can be adjusted as per your unique needs.
What are the advantages of VED analysis in cost accounting?
VED Analysis is a focused technique that helps industries maintain vital item stocks and reduce desirable items to save money. With a simpler strategy, VED can help businesses handle specific production processes.
