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Mechanics of A-B-C Analysis

The document outlines the 7 steps to calculate the annual consumption value (ACV) of items used in manufacturing and categorize them into A, B, or C categories based on their cumulative ACV percentages. Items are first arranged by descending ACV order. Their cumulative ACV percentages are then computed and items making up 70% of total ACV are category A, between 70-90% are category B, and the rest are category C. Limitations include it requires standardization, prioritizes items based only on ACV not criticality, and categories should be periodically reviewed.

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Hardik Sharma
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52 views4 pages

Mechanics of A-B-C Analysis

The document outlines the 7 steps to calculate the annual consumption value (ACV) of items used in manufacturing and categorize them into A, B, or C categories based on their cumulative ACV percentages. Items are first arranged by descending ACV order. Their cumulative ACV percentages are then computed and items making up 70% of total ACV are category A, between 70-90% are category B, and the rest are category C. Limitations include it requires standardization, prioritizes items based only on ACV not criticality, and categories should be periodically reviewed.

Uploaded by

Hardik Sharma
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 PPT, PDF, TXT or read online on Scribd
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MECHANICS OF AB-C

ANALYSIS :

Step 1. Calculate the annual consumption value (ACV)


for each item proposed to be used for manufacturing a
product by multiplying the number of units used by the
unit price of the item
Step 2. Arrange the all the item in the order of descending
sequence of Annual consumption value
Step 3 . Calculate the cumulative annual consumption
value for each item , item by item
Step 4 . Compute the cumulative percentage of annual
consumption value for each item

Step 5 . Locate the item in the list for which the


cumulative annual consumption value is 70 % of near 70
% of the total annual consumption value . Categories all
the previously listed items up to this item as A category
items
Step 6 . Locate the item in the list for which the
cumulative annual consumption value is 90 % total annual
consumption value . Categories the items listed after A
category items and up to this item B category items
Step 7 . Categories the remaining items as C category
items

Limitations :
1.To be fully effective , it should be carried out with
standardization and codification.
2. Importance is given to item based on ACV and not
on its criticality for the production.
3. It should be reviewed periodically so that change in
prices and consumption are taken into account

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