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Inventory planning and ABC classes from data

Short answer

Inventory for repetitive items is planned by ordering EOQ when stock hits reorder level. The ABC classification: A items are steel rebar and tiles (totaling 74% value), B is cement, rest are C. This directs management effort to high-value items, reduces holding costs, and prevents critical shortages.

How can inventory of construction materials be planned for repeatedly used items? Explain with suitable diagram. Consider a construction site acquired different materials given below, based on the data classify the materials in A, B and C classes. What are the significances of this classification?

MaterialsQuantityUnitRate per unit
steel re-bar15ton110000
cement600bag750
tiles1500sqft350
brick9000no12
marbles450sqft250
aggregate50cum1400
sand25cum1200

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.

ABC classification of the given materials

Value = quantity x rate.

MaterialValue (Rs)% of totalCumulative %Class
Steel re-bar16,50,00056.0256.02A
Tiles5,25,00017.8273.84A
Cement4,50,00015.2889.12B
Marbles1,12,5003.8292.94C
Brick1,08,0003.6796.60C
Aggregate70,0002.3898.98C
Sand30,0001.02100.00C
Total29,45,500100

Class limits are taken as A up to about 75%, B up to about 90%, and C the rest. Thus A: steel re-bar, tiles; B: cement; C: marbles, brick, aggregate, sand.

Significance of classification

  • Management attention and control are concentrated on the few A items, which carry about 74% of the value.
  • It reduces inventory carrying cost: A items are ordered often in small lots, C items in bulk.
  • It helps in selecting suppliers and in negotiating for A items.
  • It reduces the chance of a shortage of critical items.
  • It saves time and effort in record keeping and purchasing.

✓ Answer checked by Claude Opus 5.5 (high effort)

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