Modern management principle of inventory control

Inventory control is one of the critical job which should be taken sincerely by the people working on board as well as by the people managing the vessels on ashore. Over period of time the inventory management has been streamlined quite a bit. Spare parts and stores lying idle on board ships are a matter of concern as they bloc the money which can be used elsewhere. Similarly if there are not enough spares available, in critical situations, it will lead to off hire of the vessels.
    Now a days most of the companies have started centralized computer based software to enter the inventories, which are also directly accessible to the office.
The very best principle which can be used as inventory control on board can be

A-B-C Analysis:
Step 1: Categorize the inventory on board into three categories, A, B and C.

‘A’ being the most “valuable” items whereas ‘C’ being the least valuable ones. The aim of this method is to draw your attention on the critical few (A-items) as against the trivial many (C-items).

THE PARETO PRINCIPLE: VILFREDO PARETO (1848-1923)
20% of population owns 80% of nation’s wealth
20% of employees cause 80% of problems
20% of items accounts for 80% of firms’ expenditure

Herein lies the differentiation. We need to spend some time in deciding the “value” of each item. Value of two item of same direct cost may be high or low depending on the criticality. An item that is vital for ship’s operation will possess a high opportunity cost. For example, a spare liner for the Main Engine (high cost & vital) or a navigation lamp (low cost & vital). Although a big difference in cost, both items demand centralized and focused monitoring. So let us categorize all such items as ‘Category A’. At the other end is the 'Category C’ items. These are the desirable items (low value). These may be expensive items (such as a digital crankshaft deflection gauge) or cheap (hand cleaner, floor wax etc). Decentralized monitoring, fixed period replenishment with a monetary cap is a suitable method of inventory management for such items. (trivial many).

'Category B’ items are the essential items.



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Studies have shown that the top 70 to 80% of the total ‘value’ of goods typically accounts for only 10 to 20% of the total inventory items. So the aim is to focus on those 10 to 20% items only while effectively managing the rest.  

Step 2: On board inventory management:

Enforce strict centralized monitoring and control of the ‘A’ items. Suggest ideas such as maintaining a high security ‘store’, a locked place where these items are stored. ‘Critical’ spare parts as identified can also be included in this category. A two-bin method of ordering needs to be followed for these items as this will eliminate the risk of item shortage. Effective means for periodic and automatic stock checking to be provided that are hassle-free and reliable. Bar coding and direct communication with the Purchasing software system is recommended. Robust safety stock and high reorder levels matched with frequent review period is essential for such items.

‘C’ items: Suggest de-centralized monitoring of the category ‘C’ items. Almost 80 to 90% of the inventory items account for only about 20% of the total value of goods. Fixed time period model to be adapted for arranging delivery of supplies as far as practicable subject to the ship’s schedules. Say for example the quarterly supply of consumables. Annual or 6-monthly stock checking is usually acceptable for correcting the skew. Bulk of these items to be stored separately from the category A items in a separate store (Store ’C’)

Similarly, ships can have Store ‘B’ as well. 'Category B' items are those 30% of the inventory items that accounts for about 15 to 25 percent of the annual consumption. These items can be ordered once or twice a year, thereby saving on ordering cost and logistics and carrying costs without blocking substantial capital. Sea stock paint, gases and chemicals are examples of items suitable for including under this category. 
Advantages of A-B-C Analysis:
a. Reduce expenses: Under ABC analysis, the expensive items from category 'A' are purchased in lower quantities as much as possible.
b. Strict control: under ABC analysis, strict control can be exercised to the items in category 'A' that have higher value and thus reduce wastage.
c. Minimum storage cost: since the items from category 'A' are purchase in lower quantities as much as possible, it reduces the storage cost as well.
d. Saving in time: Since a signification effort is made for management of the items from category 'A', it helps to save time as well.
e. Economy: This method is economical, since equal time and labor is not needed for all categories of items.
The purpose of this categorization is to ensure that the purchasing staff use their resources to maximum efficiency by concentrating on those items that (a) have the greatest potential savings and (b) that are vital to ship operation → selective control will be more effective than an approach that treats all items equally. 

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