Introduction to ABC analysis :
- ABC Analysis
- Pereto Analysis
- 80/20 Rules
- Vital Few,Trivel manys
- VED Analysis
- 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 are the inter class items, with a medium consumption value; those 15-25% of annual consumption value typically accounts for 30% of total inventory 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% of total inventory items.
ABC analysis Calculation :
Advantages of ABC Classification
- This kind of categorization of inventory helps one manage the entire volume and assign relative priority to the right category. For Example A Class items are the high value items. Hence one is able to monitor the inventory of this category closely to ensure the inventory level is maintained at optimum levels for any excess inventory can have huge adverse impact in terms of overall value.
- A Category Items: Helps one identify these stocks as high value items and ensure tight control in terms of process control,
physical security as well as audit frequency.
- It helps the managers and inventory planners to maintain accurate records and draw management’s attention to the issue on hand to
facilitate instant decision-making.
- B Category Items: These can be given second priority with lesser frequency of review and less tightly controls with adequate
documentation, audit controls in place.
- C Category Items: Can be managed with basic and simple records. Inventory quantities can be larger with very few periodic reviews.
- Inventory Classification does not reflect the frequency of movement of SKU and hence can mislead controllers.
- B & C Categories can often get neglected and pile in huge stocks or susceptible to loss, pilferage, slackness in record control etc.
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