Assignment 1

SCM 115 Purchasing
Instructor: Ifte Alam
Student Name: Ayesha Karki
Student ID: A00185140
Date: 14th June 2024

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1. Explain your idea about ABC analysis.
Known as Always Better Control (ABC) Analysis is a way to divide inventory items based on
their consumption value and importance to the business. Wherein,
Class A: High-value, very important items typically around 70-80% of the total value but
represent a small percentage of the total items, around 10-20%, very tight control, complete and
accurate records.
Class B: Moderate-value, somewhat important items that represent around 15-25% of the total
value and 30-40% of the total items., less tightly controlled, good records, regular review.
Class C: Low-value, less important items around 5-10%, but account for the largest percentage
of the total items, around 50-60%., simplest controls possible, minimal records, periodic review
and reorder.
Benefits of ABC Analysis
1. Focus on Essential Items: By focusing on A items, businesses ensure these critical items are
always available.
2. Cost Savings: Resources are used efficiently by not over-managing less important items.
3. Better Inventory Control: Helps avoid stockouts by managing inventory levels effectively.
4. Improved Decision Making: Knowing which items are crucial helps in making informed
stocking decisions.
Challenges of ABC Analysis
1. Implementation Difficulty: Requires detailed data and can be time-consuming.

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2. Demand Patterns: May not account for items with low but consistent demand.
3. Seasonal Demand: Does not consider seasonal variations in demand.
4. Lead Times: Items with long lead times may be improperly categorized.
2. Please complete the following ABC analysis. Complete Annual consumption value and
% of annual consumption value.
Item Stock Percent of Annual Unit Annual Percent of Class

Number Number of Volume Cost consumption Annual
Items (units) value consumption
Stocked value
#31965 30% 1000 1205 1250000 41.8118933094 A
281
#31962 500 750 375,000 12.543567992 A
8284
#31953 500 650 325000 10.871092260 A
4513
#22435 30% 2200 120 264000 8.8306718669 B
5121
#22455 3000 75 225000 7.5261407956 B
9706
#22366 1550 125 193750 6.4808434629 B
6135
#15576 40% 10450 5 52250 1.7477371403 C
3409
#17654 9960 7.5 74700 2.4986787441 C
7142
104880 3.5081850962 C
#11955 8740 12
3425
125000 4.18118933094 C
#12345 5000 25
281
TOTAL 1139580
Calculations:
Annual Consumption Value = Annual Volume * Unit cost

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Percentage of Annual Consumption Value = (Annual Consumption Value/Sum of Annual
Consumption Value)*100
Percentage of Number of Items Stocked = (No. of Stock items in each Class/Total No. of
Stock Items)*100
'Unit', 'Annual consumption value' by

'Item Stock Number'
Annual consumption value

1400 3,500,000
1200 3,000,000
1000 2,500,000
800 2,000,000
Unit
600 1,500,000
400 1,000,000
200 500,000
0 0
Item Stock Number
Unit Annual consumption value
3. What would be the Management policy regarding managing inventory under ABC
analysis?
The following would be the management policy regarding managing inventory under ABC
analysis:
For Class A Items: Focus resources and attention to ensure high availability and minimize
stockouts. Use advanced inventory management techniques.
 Management Policy:
o High priority: These items are critical to the company's operations due to their
high annual consumption value.

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o Frequent review: Perform frequent stock checks and reviews to ensure optimal
stock levels and avoid stockouts.
o Tight control: Implement strict control measures, such as accurate demand
forecasting and close monitoring of stock levels.
o Supplier management: Maintain strong relationships with suppliers to ensure
reliable supply and negotiate favorable terms.
For Class B Items: Balance between availability and cost efficiency. Regular but not overly
frequent monitoring and control.
o Moderate priority: These items are important but less critical than Class A
items.
o Regular review: Conduct regular stock checks, monitoring and reviews, though
less frequently than Class A items, maybe monthly or quarterly.
o Balanced control: Apply balanced control measures, including periodic demand
forecasting and stock monitoring.
o Supplier coordination: Maintain good relationships with suppliers to ensure
consistent supply and manage lead times.
For Class C Items: Optimize costs by reducing the frequency of orders and reviews. Minimal
intervention required.
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o Low priority: These items have a low impact on the company's operations due to
their low annual consumption value.
o Infrequent review: Perform infrequent stock checks and reviews to maintain
minimal stock levels, annual or bi-annual.
o Loose control: Implement looser control measures, such as basic inventory
tracking and minimal monitoring.
o Cost management: Focus on minimizing holding costs and ordering costs by
considering bulk purchases or longer reorder intervals.

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SCM 115 Purchasing

Instructor: Ifte Alam

Student Name: Ayesha Karki

Student ID: A00185140

Date: 14th June 2024

1. Explain your idea about ABC analysis.

their consumption value and importance to the business. Wherein,

Benefits of ABC Analysis

Challenges of ABC Analysis

1. Implementation Difficulty: Requires detailed data and can be time-consuming.

3. Seasonal Demand: Does not consider seasonal variations in demand.

% of annual consumption value.

Item Stock Percent of Annual Unit Annual Percent of Class

Annual Consumption Value = Annual Volume * Unit cost

Percentage of Annual Consumption Value = (Annual Consumption Value/Sum of Annual

'Unit', 'Annual consumption value' by

Annual consumption value

Item Stock Number

Unit Annual consumption value

stockouts. Use advanced inventory management techniques.

high annual consumption value.

stock levels and avoid stockouts.

o Tight control: Implement strict control measures, such as accurate demand

forecasting and close monitoring of stock levels.

o Supplier management: Maintain strong relationships with suppliers to ensure

reliable supply and negotiate favorable terms.

frequent monitoring and control.

less frequently than Class A items, maybe monthly or quarterly.

o Balanced control: Apply balanced control measures, including periodic demand

forecasting and stock monitoring.

o Supplier coordination: Maintain good relationships with suppliers to ensure

consistent supply and manage lead times.

their low annual consumption value.

o Infrequent review: Perform infrequent stock checks and reviews to maintain

minimal stock levels, annual or bi-annual.

o Loose control: Implement looser control measures, such as basic inventory

tracking and minimal monitoring.

o Cost management: Focus on minimizing holding costs and ordering costs by

considering bulk purchases or longer reorder intervals.

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