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Using one of the companies from DQ 1, describe how inventory planning and accuracy can be defined using the Pareto principle.

Use APA, one reference.

Here is DQ 1:

One of the key inventory control models is the economic order quantity (EOQ). It is the order size that minimizes the total of ordering costs, holding costs and shortage costs associated with raw materials. This model is applied as a component of a constant review inventory program where there is monitoring of the level of inventory non-stop and a fixed unit is ordered every moment the level of inventory attain a particular reorder level. In this model, the driving factors include the order costs, holding costs and shortage costs. Some of the companies that currently use EOQ are Procter & Gamble Company, Rapicut Carbides Limited, and Diapers.com, whose parent company is Amazon.com (Periu, 2010). Procter & Gamble Corporation uses EOQ to diminish its order costs, holding costs and shortage costs.

Another key model is the ABC analysis. This inventory classification model involves categorizing items into three classifications; A, B and C, based activity levels. class A is the most valuable items whereas class C comprises of the least valuable items (Collignon & Vermorel, 2012). The key driving factor of this model is the level consumption value and the concept that some goods are more valuable than other goods. An example of a company that currently used ABC analysis is the global pharmaceutical firm, SanofiAventis Corporation. The company uses ABC analysis to distinguish critical items from the trivial many.

FSN analysis is another inventory control model in which items are categorized based on their rates of consumption. FSN denotes; Fast moving goods (20-25%), Slow moving goods (25-35%) and Non-moving goods (40%) respectively. The driving factor of FSN analysis is the rate of consumption and the need to control the obsolescence of a firm’s inventories (Devarajan & Jayamohan, 2016). One of the companies that currently use the FSN analysis is Atul Ltd, a chemicals company.

References

Collignon, J., & Vermorel, J. (2012). ABC analysis (Inventory) Definition – Inventory

Optimization Software – Lokad. Retrieved from https://www.lokad.com/abc-analysis-(inventory)-definition#Prioritization_of_the_management_attention_0

Devarajan, D., & Jayamohan, M. S. (2016). Stock control in a chemical firm: combined FSN and

XYZ analysis. Procedia Technology, 24, 562-567.

Periu, M. (2010). Economic Order Quantity: The $545 Million Formula – Small Business

Finance. Retrieved from https://www.periu.com/economic-order-quantity-the-545-million-formula/2010/11/16/

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