Inventory analysis is the process of evaluating the levels of stock or supplies that a business holds. It involves examining the quantities, costs, and value of a company’s inventory, as well as identifying any potential issues or opportunities related to the management of that inventory.
The goal of inventory analysis is to optimize the balance between having enough inventory to meet customer demand and minimizing excess inventory, which can tie up capital and increase carrying costs. VED analysis is one of them.
What is VED analysis of Inventory Management?
VED analysis is a tool that can be used to classify inventory items based on their importance or value to a business. VED analysis of inventory management stands for “Vital, Essential, and Desirable.”
The VED analysis process involves dividing inventory items into three categories:
- Vital items: These are items that are essential to the operation of the business and must be kept in stock at all times. These items may have high usage rates, long lead times, or be difficult to obtain.
- Essential items: These are items that are important to the business, but are not as critical as vital items. They may have lower usage rates or shorter lead times, and can be ordered as needed.
- Desirable items: These are items that are not essential to the operation of the business, but may be useful or desirable to have on hand. They may have low usage rates and can be ordered as needed.
The VED analysis can help a business prioritize its inventory management efforts and allocate resources appropriately. For example, a business may want to invest more time and resources into managing its vital items, while keeping a lower level of safety stock for essential and desirable items. This can help the business optimize its inventory levels and minimize carrying costs.
How to do VED analysis
To conduct a VED analysis, follow these steps:
- Identify the inventory items that your business holds: This may include raw materials, finished goods, spare parts, and consumables.
- Classify each item based on its importance or value to the business: To do this, consider the following factors:
- Usage rate: How frequently is the item used or consumed?
- Lead time: How long does it take to obtain the item if it is out of stock?
- Availability: Is the item readily available or is it difficult to obtain?
- Cost: How much does the item cost to purchase or produce?
Based on these factors, classify each item as vital, essential, or desirable.
- Review and adjust your inventory management strategies: Based on the VED analysis, review and adjust your inventory management strategies to ensure that you are allocating resources appropriately. For example, you may want to invest more time and resources into managing your vital items, while keeping a lower level of safety stock for essential and desirable items.
- Monitor and review regularly: Regularly review and update your VED analysis to ensure that it accurately reflects the current importance or value of each inventory item to your business. This can help you stay on top of changes in your business and adjust your inventory management strategies as needed.
VED analysis method is used when
The VED analysis method is used when a business wants to prioritize its inventory management efforts and allocate resources appropriately. It can be particularly useful when a business has a large or complex inventory and wants to identify which items are most important or valuable to the business. By classifying inventory items into three categories (vital, essential, and desirable), the VED analysis can help a business focus its attention on the items that are most critical to its operations and customers while managing other items in a more cost-effective way.
The VED analysis can also be useful when a business is facing challenges or opportunities related to its inventory management. For example, a business might use the VED analysis to identify opportunities to streamline its inventory and reduce carrying costs, or to identify potential issues with slow-moving or excess inventory.
Overall, the VED analysis can be a valuable tool for businesses that want to optimize their inventory management and make informed decisions about how to allocate their resources.
VED analysis in pharmacy example
Here is an example of how a pharmacy might use VED analysis to classify its inventory items:
Vital items:
- Prescription medications: These are essential to the operation of the pharmacy and must be kept in stock at all times to fulfill customer orders.
- Over-the-counter medications: These are important to the business and may have high usage rates or long lead times.
Essential items:
- Medical supplies: These are important to the business, but may have lower usage rates or shorter lead times.
- Vitamins and supplements: These are not essential to the operation of the pharmacy, but may be popular with customers and generate significant sales.
Desirable items:
- Non-essential over-the-counter products: These are not essential to the operation of the pharmacy, but may be useful or desirable to have on hand.
- Novelty items: These are not essential to the operation of the pharmacy, but may generate additional sales or customer loyalty.
Based on the VED analysis, the pharmacy might prioritize its inventory management efforts for vital and essential items, while keeping a lower level of safety stock for desirable items. This could help the pharmacy optimize its inventory levels and minimize carrying costs.
