ABC Analysis is a technique of inventory control by classifying the all items of stores in to three categories, namely
CATEGORY A : A few items accounting for substantial usage in terms of total monetary value ( 10 % items covering 75 % of value )
CATEGORY C : Large numbers of items of small value ( 70 % items covering 10 % value )
CATEGORY B : In between items A and B ( 20 % items representing 15 % value)
The main objective of the analysis is to decide guidelines for selective control over inventories. It is extremely difficult to control effectively if there if large number of items in stock.This system ensures strict control over a few materials ,which represents bulk of the cost, so the direction of control is more cost effective .
This system also saves time and investment by taking corrective action on the three categories of store by using discretion.
Generally Category A items deserve strict control with say weekly control reports,maximum follow up efforts to reduce lead time etc.Category=b items require moderate control, and less expensive control may be applied to category=C items.
However care should be taken for critical items which are in category B or C but extremely important from the view of production process.
Advantages of this method :-
- It ensures closer control on costly items
- Clerical cost reduced and inventory maintained at the optimal possible level.
- Storage cost is reduced under this method .
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ABC analysis is a new one for me!! I really got to know the new things!!
Informative article.. Well done!
Woh!! I learned a loot
Interesting read…. learned something new
Nice article.got to know about something new
Something so basic, it’s almost ignored but the importance of the concept is immeasurable.
informative article on a rare topic.good work!
a simple yet important topic!
Very useful method to manage inventory…nice article
Interesting ! New info..
Some examples like Walmart could be quoted….
the title is very good !
explained in simple and easy language !
structured properly !
Catchy title. Loved it
explained in a simple language..keep it up