Scribd
Upload
255 views12 pages

ABC Analysis

ABC analysis is an inventory management technique that categorizes inventory items into three groups - A, B and C - based on their value and turnover rate. A items account for 10-20% of inventory items but 70% of total value, while C items are 70% of total items but only 10% of value. This analysis allows companies to prioritize inventory control efforts on the more valuable A items, while spending less time on slower moving C items. The document outlines the steps to perform ABC analysis, including calculating annual usage value for each item and grouping them based on cumulative percentages. It also notes the different control and management measures recommended for each category.

Uploaded by

Gujar Dwarkadas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
255 views12 pages

ABC Analysis

ABC analysis is an inventory management technique that categorizes inventory items into three groups - A, B and C - based on their value and turnover rate. A items account for 10-20% of inventory items but 70% of total value, while C items are 70% of total items but only 10% of value. This analysis allows companies to prioritize inventory control efforts on the more valuable A items, while spending less time on slower moving C items. The document outlines the steps to perform ABC analysis, including calculating annual usage value for each item and grouping them based on cumulative percentages. It also notes the different control and management measures recommended for each category.

Uploaded by

Gujar Dwarkadas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 12

ABC Analysis

PRESENTED BY:-
1. MAYUR D GUJAR-62020
2. OMKAR KADAM-62025
3. SHRIJEET RAJESHWARKAR-62102
What is Inventory

 The term INVENTORY is defined as “the systematic control and


regulation of purchase, storage and usage of materials in such a way
so as to maintain an even flow of production and at the same time
avoiding excessive investment in inventories.
What is ABC Analysis

 (ABC = Always Better Control)


 ABC analysis is a business term used to define an inventory
category technique after news in materials management it is also
known as selective inventory very control policies based on ABC
analysis
 This is based on cost criteria.
 It helps to exercise selective control when confronted with large
number of items it rationalizes the number of orders, number of
items & reduce the inventory.
ABC analysis categories

 A' items – 20% of the items accounts for 70% of the annual
consumption value of the items
 'B' items – 30% of the items accounts for 25% of the annual
consumption value of the items
 'C' items – 50% of the items accounts for 5% of the annual
consumption value of the items
Another recommended breakdown of ABC classes:
 "A" approximately 10% of items or 66.6% of value
 "B" approximately 20% of items or 23.3% of value
 "C" approximately 70% of items or 10.1% of value
A ITEM

Small in number, but consume large amount of resources


Must have:
 Tight control
 Rigid estimate of requirements
 Strict & closer watch
 Low safety stocks
 Managed by top management
B Item

Intermediate
Must have:
 Moderate control
 Purchase based on rigid requirements
 Reasonably strict watch & control
 Moderate safety stocks
 Managed by middle level management
C item

Larger in number, but consume lesser amount of resources


Must have:
 Ordinary control measures
 Purchase based on usage estimates
 High safety stocks
 ABC analysis does not stress on items those are less costly but may
be vital
Steps

 Step 1: Compute the annual usage value for every item in the sample by
multiplying the annual requirements by the cost per unit.
 Step 2: Arrange the items in descending order of the usage value calculated
above.
 Step 3: Make a cumulative total of the number of items and the usage
value.
 Step 4: Convert the cumulative total of the number of items and usage
values into a percentage of their grand totals.
 Step 5: Draw a graph connecting cumulative % items and cumulative %
usage value. The graph is divided approximately into three segments,
where the curve sharply changes its shape. This indicates the three
segments A, B and C.
Disadvantages

 It gets harder to do correctly the longer you do them.


 Needs to be completed in the moment for the most accuracy.
 Still might reflect the biases of the data collector
Conclusion

 At last I conclude that ABC analysis is a vital method for control the
Inventory

You might also like