3. Selective Inventory Management

The need for selective inventory management (SIM) has been described in this chapter primarily to highlight the design of cost-effective inventory control in the light of a large number of items (SKUs) required to be managed in most organizations. Three most common approaches to SIM, namely, ABC analysis, VED analysis, and FSN analysis, have been detailed. Importance of ABC analysis as a manifestation of Pareto’s Law of Maldistribution or 20:80 rule was stressed. Pareto distribution’s similarity with log-normal distribution is discussed for the purpose of statistical analysis. VED analysis focuses on criticality of the item when needed. A two-way classification of each item in ABC-VED matrix will enable to evolve appropriate service levels to be prescribed for each category of item in the two-way grouping. FSN analysis helps in choice of inventory models as models mostly seen in literature are for fast-moving items only. Few models are available for slow-moving materials which can be used particularly for expensive items. For dead stock, SOS management must be employed. It is stressed that SIM is necessary before using scientific models of inventory to avoid misplaced rigor in inventory control.