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Heizer and Render Chapter 12 Example 1: ABC classification of Silicon Chips inventory

ToolInventory Policy
SourceHeizer, J., and Render, B. (2011). Operations Management, 10th ed. Prentice Hall, Upper Saddle River, NJ. Chapter 12, Example 1.
LevelUndergraduate

Problem

Silicon Chips stocks ten items with annual volumes and unit costs of 10286 (1,000 at $90.00), 11526 (500 at $154.00), 12760 (1,550 at $17.00), 10867 (350 at $42.86), 10500 (1,000 at $12.50), 12572 (600 at $14.17), 14075 (2,000 at $0.60), 01036 (100 at $8.50), 01307 (1,200 at $0.42) and 10572 (250 at $0.60). Rank them by annual dollar volume and classify them A, B and C.

Inputs to Enter

  • Model ABC classification (loads the example): the ten item, usage, cost lines; A cut-off 80 %, B cut-off 95 %
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Answers

  • Total annual dollar volume $232,057; 10286 first at $90,000 (38.8 %), 11526 $77,000 (33.2 %), cumulative 72.0 % after two items; 12760 11.3 %, 10867 6.4 %; 10572 last at $150
  • With the book's 72 % cut: A = 2 items and 72 % of value, B = 3 items and 23 %, C = 5 items and 5 %

Notes

Choose the ABC model; the select fills the ten items. The tool's default cut-offs are 80 / 95 %, so item 12760 (72.0 → 83.3 %) stays in class A; set the A cut-off to 72 % to match the book's grouping.

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