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The document discusses ABC analysis, which categorizes inventory items into A, B, and C classes based on their value and usage. A-class items account for 80% of total value but only 20% of items. B-class items are 15% of value and 30% of items. C-class are the remaining 5% of value and 50% of items. The analysis aims to prioritize control and resources for more important inventory items.

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43 views15 pages

PPC

The document discusses ABC analysis, which categorizes inventory items into A, B, and C classes based on their value and usage. A-class items account for 80% of total value but only 20% of items. B-class items are 15% of value and 30% of items. C-class are the remaining 5% of value and 50% of items. The analysis aims to prioritize control and resources for more important inventory items.

Uploaded by

praju
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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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 A,B and C ?
When carrying out an ABC analysis, inventory items are valued and then
ranked. The results are then grouped typically into three bands. These
bands are called ABC codes :

A class inventory will typically contain items that account for 80% of
total value, or 20% of total items.

B class inventory will have around 15% of total value, or 30% of total
items.

C class inventory will account for the remaining 5%, or 50% of total
items.

In shoes leather forms A grade materials , sole forms B grade


materials and shoe lace forms C grade materials, this is ABC
analysis in inventory management
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



Intermediate

Must have:

Moderate control

Purchase based on rigid requirements

Reasonably strict watch & control

Moderate safety stocks

Managed by middle level management


Larger in number, but consume lesser
amount of resources

Must have:

Ordinary control measures

Purchase based on usage estimates

High safety stocks


The Pareto Principle
The Pareto principle also known as the 80-20 rule or the
law of the vital few states that, for many events, roughly
80% of the effects come from 20% of the causes
It is a common Thumb rule in business.
Ex : 80% of your sales can come from 20% of your
products or 20 % of your clients give you 80 % of your
business.
20 % of the rich countries contribute more than 80 % of the
worlds GDP and 20 % of Indias Population pays 80 % of
the Tax collected !
6- STEPS USED TO PERFORM AN ABC ANALYSIS

1st step Identify the objective and the analysis criterion.

2nd step Collect data about the analyzed population.

3rd step Sort out the list by decreasing impact.

4th step Calculate the accumulated impact and the


percentage.

5th step Identify the classes.

6th step Analyze the classes and take appropriate decisions.


-ABC Analysis in APOLLO HOSPITAL Medical Stores Inventory Control
Background: The basic principle of inventory control is ABC based on cost
criteria . Methods: Based on ABC matrix, economic analysis of drug
expenditure of priced vocabulary of medical stores (PVMS) section 01 for the
year 2003 of a 190 bedded service hospital was under taken. Result: Out of
493 drugs in PVMS section 01, only 325 drugs were being used in the
reference hospital. The total cost of drugs used was Rupees 55,23,503 . Of
these 325 drugs, 47(14.4%) drugs were Category A , consuming 70% of total
expenditure, 73 (22.46 %) drugs Category B consuming 20% and rest 205
drugs (63.7%) Category C drugs cost only 10% of expenditure.
The ABC analysis can be also be useful in several
steps of the Sourcing Value Chain: Demand
Identification, to gather the annual spend of a site.
Demand Aggregation, to gather the annual spend of
several sites. Opportunity Assessment, to identify
leveraging opportunities.

The ABC tool is used to identify the vital few from the
trivial many, according to a defined set of criteria.

Different decisions may be taken from the result of


the ABC analysis.
ADVANTAGES OF ABC

CONTROL : stocking a better mix of right inventory allows a company to


control over -supply and under supply for important SKUs.
COST : Once a company has determined which items fall into each ABC
category it can establish cost reduction initiatives at the SKU level.
IMPROVED SERVICE : Improvement in customer service level and order
fulfilment. ABC analysis provides a company with information to stock the
right -mix of inventory.
WAREHOUSING: ABC inventory extends to warehouse management has
well. Companies utilizing ABC analysis in the warehouse give priority space
to faster moving SKU.
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.


At last we conclude that ABC analysis is a
vital method for control the Inventory.

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