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It is also known as "Selective Inventory Control. C): A being the most valuable items. C being the least valuable ones. B items: less tightly controlled and good records. " Policies based on ABC analysis:  A ITEMS: very tight control and accurate records  B ITEMS: less tightly controlled and good records . This method aims to draw managers' attention on the critical few (A-items) A items: very tight control and accurate records.Always better control An analysis of a range of items that have different levels of significance and should be handled or controlled differently. ABC analysis is an inventory categorization method which consists in dividing items into three categories (A. C items: simplest controls possible and minimal records. B.

. The source of supply can be one or two based on their reliability. Forecast A items more carefully  10. 14. as total investment will be least. re-order stocks and safety stock should be fixed and revised for ‘B’ items at least one in every 4 to 6 months. The stock report of ‘A’ items should be sent more frequently. Policies for ‘B’ group items o o  Order quantities. say at least once in 15  days. . Policies for ‘A’ group items  Develop class A suppliers more  9. Purchase of these items in hands of top officials  12. 16. B items should be ordered less frequently than A items 8 Policies for ‘C’ group items o o o Large quantities can be brought at a time. Paper work can be reduced considerably if orders are placed once or twice a year. C items : rest 70% of the inventory items (very little control). 15. deserve highest attention  6. B items : 20% of the items covering 20 % of the inventory investment(less stringent control)  7. C ITEMS: simplest controls possible and minimal records ABC Classification of Inventory Items  A items : 70% of the annual consumption of inventory is covered by only 10% of the items in the inventory. Purchasing department make maximum efforts to expedite and delivery of these items  11.

B = important or urgent C = less important or urgent.A = very important or urgent. .

time") to avoid excess capacity. an organization needs to choose an appropriate order pattern (e.  10-20% of the items ('A' class) account for 70-80% of the consumption  the next 15-25% ('B' class) account for 10-20% of the consumption and  the balance 65-75% ('C' class) account for 5-10% of the consumption 'A' class items are closely monitored because of the value involved (70-80% !). B items are intergroup items. frequent value analysis is required. Therefore.  20% of the items account for 80% of total inventory consumption value (Qty consumed X unit rate) A items are very important for an organization.. It is also known as the 80-20 concept. but of course less important.g. Because of the high value of these A items. C items are marginally B items are important. .The ABC concept is derived from the Pareto's 80/20 rule curve. than A items and more important than C items. In addition to that. "Just.