The "A-B-C's" of Inventory Control Often Focus on the "C" Items

It’s the details that get you; not the big picture. The big picture, which includes 20 percent of the “A” items needed by an OEM to manufacture its products, gets all the attention. But, the 50 percent of “C” items consumed in the manufacturing process (representing as little as five percent of the total cost of goods) often are overlooked. That’s too bad, because for those with an average on-hand inventory of $1million there could be up to $100,000 in lost savings.

Customers at iPower New England with inventories in the $1million range have documented from $44k up to $104k in savings for those pesky “C” items. The examples I am citing have Point of Use ranges from 3,000 up to 15,000 items. The “C” item is not something to overlook.

The experts at APICS (The Association for Operations Management) have written that OEM’s typically find 20 percent of “A” items, which represent 80 percent of costs are carefully managed and ordered frequently to minimize investment. At the other end of the scale, the bulk of “C” items – up to 50 percent – are only five percent of the cost and are typically ordered only once or twice a year. It’s at this point that lack of attention can lead to loss of control.

The carrying costs for inventory can be enormous. Costs come from putting away stock, moving material in the warehouse, rent and utilities for square footage, insurance, taxes, cycle counting, shrinkage, and opportunity cost for the money invested in inventory. Typically, carrying costs can be two percent, which can be significant. For a customer with $1million spent on items for manufacture, if the inventory can turn 15 times and inventory stay below $66,000, the savings per year can top $100,000.

Read more about our iPower-VMI programs and how it can have an impact for you.

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The iPower Distribution Group of New England is a leader in VMI programs. iPower delivers the widest breadth and deepest supply of Tier 1 commodities in the Northeast. Our supply chain provides $800m annually of industrial components, supplies, and packaging materials. To learn more visit us at http://www.ipowerne.com.