Presentation on:

- Jaimeen Baxi 3258

- Parthasarathy Penna 3272
ABC ANALYSIS
(ABC = Always Better Control)
This is based on cost criteria.
It helps to exercise selective control when confronted
with large number of items it rationalizes the number
of orders, number of items & reduce the inventory.
About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources

A ITEMS

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

B ITEMS

Intermediate
Must have:
Moderate control
Purchase based on rigid requirements
Reasonably strict watch & control
Moderate safety stocks
Managed by middle level management
C ITEMS

Larger in number, but consume lesser
amount of resources
Must have:
Ordinary control measures
Purchase based on usage estimates
High safety stocks
ABC analysis does not stress on items those are less
costly but may be vital

200000 500 20
199500 500 19
199000 500 18
198500 500 17
198000 500 16
197500 500 15
197000 500 14
196500 500 13
196000 1500 12
194500 1500 11
193000 1750 10
191250 2750 9
188500 4000 8
184500 4500 7
180000 5000 6
175000 7500 5
167500 7500 4
160000 20000 3
140000 50000 2
90000 90000 1
CUMMULATIVE CUMMULATIVE
COST COST [Rs.]
ANNUAL COST ANNUAL COST
[Rs.]
ITEM ITEM COST % COST %
ITEM % ITEM %
70 % 70 %
20 % 20 %
10 % 10 %
10 % 10 %
20 % 20 %
70 % 70 %
ABC
A
N
A
L
Y
S
I
S
WORK
SHEET
When and why to use it?

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
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
Required Resources
An ABC analysis requires directionally correct
data. It relies on the availability of systems
allowing measurement of the criteria chosen
for the analysis.

Tool Limitations / Common Pitfalls
Most of the time only past annual spend is
available to perform an ABC analysis.
CONCLUSION
Thus, ABC Analysis is a vital method of
Inventory Control.