An Application of ABC Analysis to Control Imported Material

Successful operation of a manufacturing firm depends to a large extent on an adequate inventory balance of raw materials and components. Excess inventory means a high amount of tied-up capital; a low inventory can produce interruption in the production flow. Appropriate inventory levels become even more crucial when part of the material is imported. Long lead times add to the uncertainty of demand between replenishments; in addition, import restriction laws issued by foreign countries where affiliates of multinational companies are located must also be taken into consideration. This paper describes financial difficulty for one of the Brazilian affiliates of a USA-based company because of mandatory bank deposits highly devalued by inflation. An ABC analysis provided a good insight into the situation and enabled a considerable improvement in the company's performance.