ABC ANALYSIS

For the Inventory of Victory Devices Pvt. Ltd., Delhi
Submitted By: Ankit Kapoor, Roll No- 221025, FM 11"1#"201$ 22A!

ABC ANALYSIS ACKNOWLEDGEMENT % take t&i' opportunity to e(pre'' my pro)ound *ratitude and deep re*ard' to my )a+ulty Prof.'+&ool o) mana*ement )or &i' e(emplary tea+&in*'. *uidan+e and +on'tant en+oura*ement t&rou*&out t&e +our'e! .&e ble''in*. ALOK KUMAR o) F.R. &elp and *uidan+e *i/en by &im time to time '&all +arry me a lon* 0ay in t&e 1ourney o) li)e on 0&i+& % am about to embark! Page 2 .

2ompany 7ro)ile!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!# 3! AB2 Analy'i' )or 5i+tory 6e/i+e' 7/t! 8td!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 5! 2on+lu'ion!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1$ Page $ .ABC ANALYSIS Contents 2ontent'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $ !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $ 1! AB2 analy'i'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 1!1 AB2 analy'i' 2ate*orie'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!5 2! Step' )or t&e +la''i)i+ation o) item':!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4 $! 5i+tory 6e/i+e' 7/t! 8td! .

time@= to a/oid e(+e'' +apa+ity! >B$ item' are important. 7oli+ie' ba'ed on AB2 analy'i': • • • A ITEM ! /ery ti*&t +ontrol and a++urate re+ord'! B ITEM ! le'' ti*&tly +ontrolled and *ood re+ord'! C ITEM ! 'imple't +ontrol' po''ible and minimal re+ord'! .&u'. t&e in/entory i' *rouped into t&ree +ate*orie' < A" B" an# C= in order o) t&eir e'timated importan+e! >A$ item' are /ery important )or an or*ani:ation! Be+au'e o) t&e &i*& /alue o) t&e'e ?A@ item'.ue o)ten u'ed in material' mana*ement! %t i' al'o kno0n a' Selective Inventory Control.&ere)ore ?B@ item' are inter*roup item'! >C$ item' are mar*inally important! .&i' met&od aim' to dra0 mana*er'@ attention on t&e +riti+al )e0 <A-item'= not on t&e tri/ial many <2-item'=! T%e Pareto Prin&i'le (IL)REDO PARETO *1+./01 Page 3 .&e AB2 analy'i' 'u**e't' t&at in/entorie' o) an or*ani:ation are not o) e.in.ual /alue! .&e ABC analysis i' a bu'ine'' term u'ed to de)ine an in/entory +ate*ori:ation te+&ni.uent /alue analy'i' i' re.ABC ANALYSIS 1.uired! %n addition to t&at.&e AB2 analy'i' pro/ide' a me+&ani'm )or identi)yin* item' t&at 0ill &a/e a 'i*ni)i+ant impa+t on o/erall in/entory +o't. )re. 0&ile al'o pro/idin* a me+&ani'm )or identi)yin* di))erent +ate*orie' o) 'to+k t&at 0ill re. ABC analysis . but o) +our'e le'' important t&an ?A@ item' and more important t&an ?2@ item'! .+-1. an or*ani:ation need' to +&oo'e an appropriate order pattern <e!*! ?Au't.uire di))erent mana*ement and +ontrol'! .

item' 0it& t&e lo0e't +on'umption /alueC t&e lo0er 5B o) t&e annual +on'umption /alue typi+ally a++ount' )or 50B o) total in/entory item'! Page 5 .1 ABC analysis Cate2ories .&e AB2 approa+& 'tate' t&at a +ompany '&ould rate item' )rom A to 2. 0it& a medium +on'umption /alueC t&o'e 1525B o) annual +on'umption /alue typi+ally a++ount' )or $0B o) total in/entory item'! • C-items are. on t&e +ontrary.ABC ANALYSIS • • • 20B o) population o0n' #0B o) nation@' 0ealt&! 20B o) employee' +au'e #0B o) problem'! 20B o) item' a++ount' )or #0B o) )irm' e(penditure! 1. ba'in* it' ratin*' on t&e )ollo0in* rule': • A-items are *ood' 0&i+& annual +on'umption /alue i' t&e &i*&e'tC t&e top D0-#0B o) t&e annual +on'umption /alue o) t&e +ompany typi+ally a++ount' )or only 10-20B o) total in/entory item'! • B-items are t&e inter+la'' item'.

t&e 'upply mana*er +an identi)y in/entory &ot 'pot'.ABC ANALYSIS .&rou*& t&i' +ate*ori:ation. and 'eparate t&em )rom t&e re't o) t&e item'. te's for t%e &lassifi&ation of ite3s! 1! Find out t&e unit +o't and t&e u'a*e o) ea+& material o/er a *i/en period! 2! Multiply t&e unit +o't by t&e e'timated annual u'a*e to obtain t&e net /alue! $! 8i't out all t&e item' and arran*e t&em in t&e de'+endin* /alue <Annual 5alue=! 3! A++umulate /alue and add up number o) item' and +al+ulate per+enta*e on total in/entory in /alue and in number! 5! 6ra0 a +ur/e o) per+enta*e item' and per+enta*e /alue! 4! Mark o)) )rom t&e +ur/e t&e rational limit' o) A. B and 2 +ate*orie'! Page 4 . e'pe+ially t&o'e t&at are numerou' but not t&at pro)itable! /.&e annual +on'umption /alue i' +al+ulated 0it& t&e )ormula: (Annual demand) x (item cost per unit) .

ABC ANALYSIS Cate2ory Class ite3s Class ite3s Class ite3s Per&enta2e of ite3s A About 20B B About $0B C About 50B Per&enta2e 4al5e of ann5al 5sa2e About #0B About 15B About 5B 2lo'e day to day +ontrol Re*ular re/ie0 %n)re.uent re/ie0 Page D .

ABC ANALYSIS 0. 0&i+& enable t&em to manu)a+ture t&eir ran*e in 'tri+t +omplian+e 0it& t&e international .uirement' o) 7o0er Se+tor. Mi+ro 7&one'.&ey 0ork a' a uni)ied team and endea/our to e(pand t&eir e(i'tin* produ+t ran*e F to 'et up o))i+e' in all metro +itie'! Page # . So+ket' and ot&er -le+troni+ 2omponent'! . 2erami+ 2apa+itor'.&ey pro+ure t&eir entire ran*e )rom reno0ned or*ani:ation' ba'ed at Aapan. Ei*& 5olta*e 2erami+ 2apa+itor'.&ey &a/e all re. t&ey are one o) t&e 0ell-e'tabli'&ed di'tributor' and 'to+ki't' o) an e(ten'i/e ran*e o) 6iode'.ui'ite and modern )a+ilitie'. t&ey &a/e been 'u++e'')ul in t&e metin* t&e /aried re. per)orman+e and ener*y 'a/in* )eature'! By o))erin* a .uality ran*e o) produ+t'. . be'ide' t&eir 0ide di'tribution net0ork. Se+tor' a+ro'' t&e nation! . Multi 8ayer 2erami+ 2apa+itor'. Eon* Kon* and 2&ina! .&eir poli+y i' to pro/ide optimum . -le+trolyti+ 2apa+itor'.ai0an. Lt#.uality 'tandard'! Ba'ed at Ne0 6el&i. t&ey al'o &a/e tie-up' 0it& /ariou' lo*i'ti+ +ompanie' t&at &elp t&em to deli/er t&e ordered +on'i*nment' 0it&in t&e 'tipulated time )rame! . inte*rated 2ir+uit'. <%ndia=. 2R. (i&tory De4i&es P4t. %. -le+troni+ 2apa+itor'.uality produ+t' at indu'try leadin* pri+e'. t&ey &a/e been able to *arner reputed +lientele a+ro'' t&e nation! .&ere entire ran*e i' kno0n )or it' pre+i'ion F appli+ation 'pe+i)i+ de'i*n. e))i+ien+y.Co3'any Profile -'tabli'&ed in t&e year 19#5. .

and unit +o't'! Ite3 n536er Unit &ost Ann5al #e3an# 1717 7 5 3500 0 17/7 7 11 3000 1707 7 1$ 300 17.77 Unit &ost 5 11 1$ 9 Ann5al #e3an# 35. and 2! Cate2ory Class ite3s Class ite3s Class ite3s Per&enta2e of ite3s A About 20B B About $0B C About 50B Per&enta2e 4al5e of ann5al 5sa2e About #0B About 15B About 5B 2lo'e day to day +ontrol Re*ular re/ie0 %n)re.7 7 9 2000 1787 7 # 5000 1797 7 14 2000 17:7 7 2$ 2500 0 17+7 7 4 500 17.000 Page 9 . .200 1#.7 7 11 4500 1177 7 1D 2500 Ge no0 '&o0 t&at &o0 t&e +ompany '&ould +la''i)y t&e'e item' into *roup' A. Lt#.otal +o't per year: Hnit +o't I total +o't per year Ite3 n536er 17177 17/77 17077 17. B.000 300 2000 Total Cost 'er year 225.uent re/ie0 te' 1 ! We &al&5late t%e total s'en#in2 'er year. ABC Analysis for (i&tory De4i&es P4t. Belo0 mentioned table '&o0' t&e item' <identi)ied by item number= t&eir annual demand'.000 3.ABC ANALYSIS .000 5..000 33.

77 11777 # 14 2$ 4 11 1D 5. of total 5sa2e 21!$B 3!2B 0!5B 1!DB $!#B $!0B 53!3B 0!$B 4!#B 3!0B 177.000 D1. H'a*e a' a B o) total u'a*e J u'a*e o) item"total u'a*e Ite3 n536er 17177 17/77 17077 17.000 33.500 32.000 25.ABC ANALYSIS 17877 17977 17:77 17+77 17.500 2.000 $2.000 5.500 1#.000 32.77 17077 C535lati4 e .000 4.500 30.500 2.500 30. of total 5sa2e 53!3B 21!$B 4!#B $!#B 3!2B $!0B 3!0B 1!DB 0!5B C535lati4 e . of total 53!3B D5!DB #2!5B #4!$B 90!5B 9$!5B 9D!5B 99!2B 99!DB Cate2or y A A B B B B 2 2 2 Page 10 .000 $2.000 $.000 D1.500 1"789"/77 te' /! We &al&5late t%e 5sa2e 'er&enta2e of ea&% ite3 in t%e total 5sa2e.77 17877 17977 17:77 17+77 17.000 300 2000 5.000 33.000 2.500 32.000 5. of ite3s 10B 20B $0B 30B 50B 40B D0B #0B 90B Unit &ost 2$ 5 11 # 11 14 1D 9 1$ Ann5al #e3an# 25.000 500 4.200 Usa2e as a .000 30.000 2.000 35.000 $.000 25.000 D1.000 $2.000 2.000 3.000 500 4.000 5D5.D5.000 2.25.500 1"789"/77 Usa2e as a . te' 0! We sort t%e ite3s as 'er t%eir 5sa2e 'er&enta2e Ite3 n536e r 17:77 17177 17.500 5.500 2000 300 Total Cost 'er year 5.77 11777 Unit &ost 5 11 1$ 9 # 14 2$ 4 11 1D Ann5al #e3an# 35.77 17877 17/77 17977 11777 17.000 2.000 3.500 Total Cost 'er year 225.000 5D5.200 1#.

10#00 Per&enta2e of ite3s 20B 30B 30B Per&enta2 e 5sa2e D5!D3B 1D!#B 4!5B A&tion 2lo'e 2ontrol Re*ular Re/ie0 %n)re. 100!0B 2 te' .ABC ANALYSIS 17+77 Total 5sa2e 100B 4 500 $. 10100 10900. 10$00.1 30-#0B 15-30B 5-20B Page 11 . ! Res5lts of Cal&5lation Cate2ory Class A Class B Class C Ite3s 10D00. 10200. 10300.000 17"89"/7 7 0!$B 177.uent Re/ie0 A##itional R5les for ABC Analysis Cate2ory Class A ite3s Class B ite3s Class C ite3s Per&enta2e of ite3s 5-25B 20-30B 30-D5B Per&enta2e 5sa2e*. 10500. 10400 11000.

to0ard t&e +la'' 2! • Reorderin* C-items i' made le'' )re. t&e'e 0ould be t&e be't Page 12 .uent. t&e more a+ti/ity an item i' likely to &a/eC to en'ure a++urate re+ord balan+e'. &i*&er priority item' are +y+le +ounted more )re. and o) reorderin* only 0&en an a+tual pur+&a'e i' madeC t&i' approa+& lead' to 'to+k-out 'ituation a)ter ea+& pur+&a'e 0&i+& +an be an a++eptable 'ituation. a' t&e 2-item' pre'ent bot& lo0 demand and &i*&er ri'k o) e(+e''i/e in/entory +o't'! Pro&5re3ent an# Ware%o5se A''li&ations T%e res5lts of an ABC Analysis e<ten# into a n536er of ot%er in4entory &ontrol an# 3ana2e3ent 'ro&esses! • Review of stocking levels: KAL item' 0ill *enerally &a/e *reater impa+t on pro1e+ted in/e'tment and pur+&a'in* 'pend.uarterC KBL item' on+e e/ery 4 mont&'C and K2L item' on+e e/ery 12 mont&'! • Identifying items for potential consignment or vendor stocking: Sin+e KAL item' tend to &a/e a *reater impa+t on in/e'tment.ABC ANALYSIS In4entory Mana2e3ent Poli&ies Ea&% ite3 s%o5l# re&ei4e a treat3ent &orres'on#in2 to its &lass! • A-items '&ould &a/e ti*&t in/entory +ontrol. in t&e +ontrary. and t&ere)ore '&ould be mana*ed more a**re''i/ely in term' o) minimum and ma(imum in/entory le/el'C ina+ti/e item' 0ill )all to t&e bottom o) t&e prioriti:ed li'tC t&e bottom o) t&e K2L +ate*ory i' t&e be't pla+e to 'tart 0&en per)ormin* a periodi+ ob'ole'+en+e re/ie0! • Cycle counting: t&e &i*&er t&e u'a*e.uentlyC a typi+ally in/entory poli+y )or 2item' +on'i't o) &a/in* only 1 unit on &and. 0it& 0eekly or e/en daily reorderC a/oidin* 'to+k-out' on A-item' i' a priority! • B-items bene)it )rom an intermediate 'tatu' bet0een A and 2C an important a'pe+t o) +la'' B i' t&e monitorin* o) potential e/olution to0ard +la'' A or.uentlyC KAL item' are +ounted on+e e/ery . more 'e+ured 'tora*e area' and better 'ale' )ore+a't'C reorderin* '&ould be )re.

+la'' B and +la'' 2 item' i' +learly de)ined! . in/entory data +an be 'e*re*ated by AB2 +la''i)i+ation. Con&l5sion • • .ABC ANALYSIS +andidate' to in/e'ti*ate t&e potential )or alternati/e 'to+kin* arran*ement' t&at 0ould redu+e in/e'tment liability and a''o+iated +arryin* +o't'! • Turnover ratios and associated inventory goals: KAL item' 0ill &a/e *reater u'a*e t&an KBL or K2L item'.&e purpo'e o) t&i' +la''i)i+ation i' to en'ure t&at pur+&a'in* 'ta)) u'e re'our+e' to ma(imum e))i+ien+y by +on+entratin* on t&o'e item' t&at &a/e t&e *reate't potential 'a/in*'! • Sele+ti/e +ontrol 0ill be more e))e+ti/e t&an an approa+& t&at treat' all item' identi+ally! Page 1$ . and a' a re'ult '&ould &a/e *reater turno/er ratio'C 0&en e'tabli'&in* in/e'tment and turno/er metri+'. 0it& di))erent tar*et' )or ea+& +ate*ory! 8.&e boundary bet0een +la'' A.