2. What is ABC Analysis?

o ABC analysis divides the total inventory into 3 classes A,B & C using the rupee volume, as follows: o class A items constitute the most important class of inventories so far as the proportion in the total value of inventory .The A items consists of approximately 15% of the total items , accounts for 80% of the total material usage. This items merit a tightly controlled inventory system with constant attention to the purchase & stores management. A larger effort per item on only a few items will cost only moderately, but the effort can result in larger savings. o class B items constitute an intermediate position, which constitute approximately 35% of the total items, accounts for approximately 15% of the total material consumption. These items merit a formalized inventory system & periodic attention but the purchase & the stores management. o class C items are quite negligible. It consists remaining 50% items, accounting only 5% of the monetary value of total material usage . Quite relaxed inventory procedures are used.