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ABC classification and inventory planning

Short answer

ABC classification divides materials by annual consumption value, with A items requiring tight control. For repetitive items like cement, a fixed economic order quantity (EOQ) is ordered whenever stock reaches the reorder level (daily consumption × lead time plus safety stock), keeping stock between maximum and minimum levels.

Explain ABC classification of construction materials. Discuss the inventory planning process for repetitive materials.

ABC classification

ABC classification is an inventory control technique that divides materials into three classes according to their annual consumption value (quantity x unit rate), based on the Pareto (80-20) principle.

ClassShare of itemsShare of annual valueControl
AAbout 10-20%About 70-80%Very tight: frequent review, accurate records, close supplier follow-up, small safety stock
BAbout 30%About 15-20%Moderate control, periodic review
CAbout 50-60%About 5-10%Simple control, bulk order, large safety stock

Typical A items: cement, steel, bitumen; B: bricks, aggregates, tiles; C: nails, binding wire, paint brushes.

Inventory planning for repetitive (regularly used) materials

Materials such as cement, sand and bricks are used continuously, so their stock is kept between a maximum and a minimum level by ordering a fixed economic quantity (EOQ) whenever the stock falls to the re-order level.

 Stock
   ^
Max|\      |\      |\       maximum level
   | \     | \     | \
   |  \    |  \    |  \
ROL|...\...|...\...|...\..... re-order level (order placed)
   |    \  |    \  |    \
   |     \ |     \ |     \
Min|......\|......\|......\.. minimum (safety) stock
   |   <-->|   <-->|
   |    LT |    LT |
   +-----------------------------> Time
 LT = lead time. Stock falls with use; the order placed at
 ROL arrives after LT and raises the stock by EOQ (vertical line).

Quantities:

  • Reorder level (ROL) = daily consumption x lead time + safety stock
  • Maximum level = ROL + EOQ - (minimum consumption x minimum lead time)
  • Minimum (safety) level = ROL - (normal consumption x normal lead time)
  • Average stock = Minimum level + EOQ/2
  • EOQ = 2DCo/Ch\sqrt{2DC_o/C_h}, where DD is annual demand, CoC_o ordering cost per order and ChC_h carrying cost per unit per year.

Process: estimate consumption from the work schedule, fix the lead time and safety stock, compute the EOQ, place an order at the ROL, check the material on receipt, and review the levels when the rate of work changes.

✓ Answer checked by Claude Opus 5.5 (high effort)

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