ABC ANALYSIS

INSIDE: INSIDE:What is ABC Analysis? Its Procedure. Example. Policies of Control. Merits. Conclusion.

     

What is ABC Analysis ??



ABC analysis underlines a very important principle vital few : trivial many . There are few items which is given below. A-Items :- It is usually found that that hardly 5-10% 5of the total account for 70-75% of the total money 70spent on the materials. These items are require detailed and rigid control and need to be stocked in smaller quantities. It is a healthy approach.

B-Items :- These items are generally 10-15% of the :10total items and represent 10-15% of the total 10expenditure on the materials. These are the immediate items. C-Items :- These are numerous (70-80% of the total :(70items), inexpensive (hardly 5-10% of the annual 5expenditure on materials) and hence insignificant (do not require close control) items.

PROCEDURE:PROCEDURE:
Prepare the list of the items and estimate their annual consumption (units).  Determine unit price (or cost) of each item.  Multiply each annual consumption by its unit price (or cost) to obtain its annual consumption in rupees (annual usage).  Arrange items in the descending order of their annual usage starting with the highest annual usage down to the smallest usage.


CONTINUED..


Calculate cumulative annual usages and express the same as cumulative usage percentages. Graph cumulative usage percentages against cumulative item percentages and segregate the items into A, B and C categories.

EXAMPLE:EXAMPLE:Item description Annual consumption Price Annual Cumulative usage annual usage 40000 76000 108000 120000 126000 130200 133700 Cumulative category usage %

Nitric acid Methylene Drums Ethyle Dspirit Xylene Paraffin wax

4000 6000 2000 2400 600 4200 3500

10/lit 40000 6/kg 16 5/kg 36000 32000 12000

27.5 52.3 74.5 82.7 86.8 89.9 92.2

A A A B B B C

10/kg 6000 1/li 1/li 4200 3500

Policies of control:control:      

Degree of control : Ordering procedure : Staggering of delivery schedule : Stock records : Priority treatment : Safety stock : Price discounts :

MERITS :: 

Storage cost is reduced. Investment in inventory is reduced to the minimum possible level. Large part of the work connected with purchases can be systematized on a routine basis to be handled by sub-ordinate staff. subManagement time is saved.

CONCLUSION:CONCLUSION:

Selective control advocates control-by-exception. control-byUniform treatment of all items gives diffused effect besides being expensive. Items of ABC Analysis should be classified so that major portion of effective material time is spent on those materials which are more important than others.. Finally, It is a healthy approach towards the Inventory control.