11.

MUSIC-3D SYSTEMS FOR SAFETY STOCK POLICIES

The materials executive handles a large number of items in actual practice, in any
organization. For example, a refinery has over 50,000 items consisting of spares,
refractories, consumables, components, chemicals, and other items. The importance of
each item is indeed a major parameter while procuring it. Some of the items may be very
critical, or difficult to procure, or may have to be imported. Moreover, as the number of
items increases, the effective control and time spent on each item diminishes. To
overcome this defect, we adopt selective control techniques to improve the purchase
activity. The fundamental idea behind selective control techniques is to put the efforts
where the results are worth it. Let us now discuss the various control mechanisms used
for inventory control based upon different parameters like consumption values, degree of
importance, etc.,
ABC Classification
It has been found that about 10 per cent of the number of items contributes to about 70
per cent of the consumption value known as A category. The middle 20 per cent in
number accounts for about 20 per cent in annual consumption value, and is known as B
category. The remaining 70 per cent accounts for about 10 per cent of annual
consumption value. The exact cut-off points for A, B, C will vary depending upon the
decision making ability of the purchase executives and hence will vary from firm to firm.
XYZ and FSN classification
One important way of finding the usage of materials is according to their movement. For
this purpose, we have fast moving, slow moving and non-moving or FSN analysis. XYZ
is based on the year-end stores inventory value, X items are the top 10 per cent of item,
accounting for 70 per cent of stock value, Y the middle 20 per cent accounting for middle
20 per cent of stock value and Z the remaining items.

Operation management II
CII Institute of Logistics
Website: www.ciilogistics.com
SDE/GOLF/SOS- BASED ON AVAILABILITY
Materials can be classified according to the problems faced in the procurement. We can
have items that are scarce to obtain, difficult to obtain, easy to obtain- called SDE
analysis. We also have GOLF, which stands for government controlled, ordinarily
available in open market, locally available and foreign supplier. There is also seasonal
changes in availability of products. For this we have SOS-seasonal and off-seasonal type.
VED/RAM/VEIN- BASED UPON CRITICALITY
VED-Vital, essential and Desirable
VEIN- vital equipment, essential equipment, important equipment and normal equipment
RAM-reliability, availability and maintainability
MUSIC-3D ANALYSIS
The traditional ABC analysis discusses only the consumption value without considering
the criticality or availability and hence has miserably failed in actual practice. If we adopt
three levels for each of the following parameters-consumption value, availability and
criticality, we get ABC, SDE and VED, then we land in 27 groups and it becomes a
difficult job in practice to follow-up. Hence we advocate two levels for each of the three
dimensions- high consumption value/ low consumption value; long lead-time/short
leadtime
and critical/non-critical categories.

This integrated picture is called, MUSIC-3D or Multi-unit selective inventory

control three-dimensional approach.
High consumption value
items
Low consumption value
Long lead time Short lead
time
Long lead time Short lead
time
CRITICAL Critical
LLT
LCV 1
Critical
SLT
HCV 2
Critical
LLT
LCV 3
Critical
SLT
LCV 4
NONCRITICAL
Non-critical
LLT
HCV 5
Non-critical
SLT
HCV 6
Non-critical
LLT
LCV 7
Non-critical
SLT
LCV 8
INTERPRETATION OF MUSIC-3D
Having grouped all items on the basis of consumption value, criticality and lead-time, let
us now consider the item in cell 3. These are critical from operational view, take long
lead-time for procuring, but with low consumption value. For this category, the purchase
quantity must be very large with annual ordering. In view of the low consumption value ,
the powers of delegation should be such that these are purchased at the lowest level or
decentralized purchase. The inventory should be very high and the service level will be
100 per cent.
The problem before the purchase manager are the items falling in cells 1 and 2, which are
critical in nature and have high consumption value. He has to exercise strict control on
these items. The ordering is more frequent with strong follow-up.
MUSIC-3D is useful to purchase executive, to take decisions on a scientific and practical
basis on the following aspects:
a) Purchase quantity
b) Follow-up
c) Tighter procedures systems
d) Safety stock
e) Average inventory
f) Powers of delegation
g) Information system
h) Application of value engineering and other cost reduction techniques
i) Development of new sources
j) Vendor rating
k) Forecasting
l) E-channels
It is a powerful approach in the direction of cost reduction and application of scientific
management principles in the making of materials as a profit centre.
BASIC INVENTORY CONCEPTS
In any organization, inventories add an operating flexibility that would not otherwise
exist. The inventory can be classified as
1. Raw materials
2. Work-in-process inventory
3. Finished goods inventory
The raw materials inventory remove dependency between suppliers and plants. The
work-in-process inventories remove dependency between machines of a product line. The
finished goods inventory remove dependency between the plant and its customers/
market.
The main functions of inventory are:
1. Smoothing out irregularities in supply
2. Minimizing the production cost
3. allowing organizations to cope with perishable materials
4. Managing the variability in demand
Inventory decisions:
There are two basic inventory decisions managers must take in their work.
1. When to replenish the inventory of an item
2. How much of an item to order when the inventory of the item is to be replenished.