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ABC Analysis

ABC Analysis

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Published by Dhruv Mashruwala

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Published by: Dhruv Mashruwala on Feb 23, 2012
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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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