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ABC Analysis

# ABC Analysis

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11/01/2012

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# ABC ANALYSIS

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

It is usually found that that hardly 5-10% 5of the total account for 70-75% of the total money 70spent on the materials. It is a healthy approach.   . There are few items which is given below.What is ABC Analysis ??  ABC analysis underlines a very important principle ³vital few : trivial many´ . A-Items :. These items are require detailed and rigid control and need to be stocked in smaller quantities.

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

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

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

8 89.9 92.2 A A A B B B C 10/kg 6000 1/li 1/li 4200 3500 .7 86.5 82.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 D¶spirit Xylene Paraffin wax 4000 6000 2000 2400 600 4200 3500 10/lit 40000 6/kg 16 5/kg 36000 32000 12000 27.3 74.5 52.

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

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

control-byUniform treatment of all items gives diffused effect besides being expensive.CONCLUSION:CONCLUSION: Selective control advocates control-by-exception.. Finally. It is a healthy approach towards the Inventory control.   . 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.

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