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ABC Analysis: Categorization Method

ABC analysis is an inventory categorization method that divides items into A, B, and C categories based on their annual consumption value. A-items account for the highest consumption value but represent only 10-20% of total inventory items. B-items have medium consumption value and account for 30% of inventory items. C-items have the lowest consumption value but represent 50-60% of total inventory items. ABC analysis helps managers focus on the critical few high-value A-items and control costs by optimizing inventories.

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ShubhamJain
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28 views5 pages

ABC Analysis: Categorization Method

ABC analysis is an inventory categorization method that divides items into A, B, and C categories based on their annual consumption value. A-items account for the highest consumption value but represent only 10-20% of total inventory items. B-items have medium consumption value and account for 30% of inventory items. C-items have the lowest consumption value but represent 50-60% of total inventory items. ABC analysis helps managers focus on the critical few high-value A-items and control costs by optimizing inventories.

Uploaded by

ShubhamJain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ABC Analysis

ABC analysis is an inventory


categorization
method
which
consists in dividing items into three
categories (A, B, C)
This method aims to draw managers
attention on the critical few (A-items)
not on the trivial many (C-items).

A-items
A-items are goods which annual
consumption value is the highest; the
top 70-80% of the annual consumption
value of the company typically
accounts for only 10-20% of total
inventory items

B-items
B-items are the interclass items, with
a medium consumption value; those
15-25% of annual consumption value
typically accounts for 30% of total
inventory items.

C-items
C-items are, on the contrary, items
with the lowest consumption value; the
lower 5% of the annual consumption
value typically accounts for 50-60% of
total inventory items.

Advantages
It ensures control over the costly items in which
a large amount of capital is invested.
It helps in maintaining stock turnover rate at
comparatively higher level through scientific
control of inventories.
It ensures considerable reduction in the storage
expenses. It results in stock carrying stock.

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