Download BUS 446 Week 3 DQs Describe the ABC classification system. What

BUS 446 Week 3 DQs
Describe the ABC classification system. What is the purpose of classifying items in this fashion?
What would be the primary value of ABC analysis to a retailer? To a manufacturer?
A vendor keeps careful records of the number of magazines she sells each day and the various
costs that are relevant to her decision regarding the optimal number of magazines to
purchase. For what reason might her results be inaccurate? What would she need to do in
order to accurately measure the daily demand for magazines?
Describe the ABC classification system. What is the purpose of classifying items in
this fashion? What would be the primary value of ABC analysis to a retailer? To a
manufacturer?
When it comes to inventory based on the ABC classification system, using the dollar
volume is the most effective one as per Starr (2006). This means that the flow of cash
whether it is coming in and out is in dollar term. When it comes to the largest volume of the
product produced, the volume is 25% and this is classified as type A. the total dollar
volume is 75% and the 25% we mentioned earlier is part of the 75% but 15% of it is
considered as total dollar volume. This is very significant when it comes to the inventory
unlike the type B and C classification where in the dollar volume doesn’t mean much.
Why do we need to classify it in the first place? Inventory classification is considered
important because it helps the company track the behavior of the product they have like
the performance when it comes to sales while at the same time helps the company
strategize and do pricing information as well as production improvements. With inventory,
the company can determine the amount or price of dollar volume they are raking in or
going out of the company hence they can determine the driving cost of producing a certain
product. For example, how much the company spends in converting raw materials into a
finished product and how much the company makes after selling the said product. This is
more like a feasibility study that is being done through inventory which is most useful for
retailers. With the ABC inventory method it will help calculate when it comes to giving
proper pricing information or proper discounts without losing their profit or losing their
business.
Reference
Starr, M. (2006). Foundations of Production and Operations Management (1st Ed.). Atomic
Dog Publishing.
A vendor keeps careful records of the number of magazines she sells each day and
the various costs that are relevant to her decision regarding the optimal number of
magazines to purchase. For what reason might her results be inaccurate? What
would she need to do in order to accurately measure the daily demand for
magazines?
Demand for the magazine can be affected by the price of the magazine itself.
According to Starr (2006), it is a driver that determines how consumers will respond to a
particular product. Another factor is the price elasticity or the impact of production and
planning cost to the actual price of the said product. It means that the when the price
changes, the demand might change as well. Economically speaking, price elasticity is
considered as the percentage in changes of quantity demanded by consumers as it is
divided to the percentage change in price of the said product.
For this seller, she thinks that selling more today gives her a chance to be able to sell
more the following day yet there is a chance or a possibility that the sale today could have
been affected by the content of the magazine (maybe there is a good story today that
everyone wants to read about). This just mean that in the case of a magazine, the cover and
the story inside could be a factor as to how many magazines can be sold in a day as well as
the location of the business. If the business seller is in an area that has a lot of people on
weekdays they expect the sale to be higher on weekdays but less on weekends. One thing
would be for sure though as the price elasticity have predicted, an increase of price might
cause the magazine sale to drop eventually.
Reference
Starr, M. (2006). Foundations of Production and Operations Management (1st Ed.). Atomic
Dog Publishing.