 Need Recognition

 Information Search

 Evaluation of Alternatives

 Purchase decision

 Post Purchase Behavior

  ABC analysis is an inventory categorization method which
consists in dividing items into three categories (A, B, C): A
being the most valuable items, C being the least valuable
ones

A – B – C analysis
 ABC Classification
 A Items: very tight control, complete and accurate records, frequent
review.
 B Items: less tightly controlled, good records, regular review.
 C Items: simplest controls possible, minimal records, large inventories,
periodic review and reorder.
 The origin of ABC analysis is PARETO’S 80 – 20 rule.

 This rule says that 80 % of country’s economy is controlled by

20% of the people.

 If we apply this rule to verify its correctness, the results say

that it is correct.
 In addition to the intrinsic or market value of materials, which is invested
in the materials, there is sometimes a nuisance value to the materials.

 In ABC analysis, we have seen that annual consumption value; quantity of

materials consumed and unit cost plays a vital role.

 This is known as VED analysis, V stands for vital, E stands for

essential and D stands for desirable items
 In addition to the conventional ABC analysis, VED analysis also plays an
important role in materials management.

 VED ranking may be done on the basis of the shortage costs of materials,
which can be either quantified or qualitatively expressed.

 There are four types of inventory costs

 Item cost
 Ordering/ setup cost
 Carrying/ holding costs
 Stock out cost
 Based on the consumption pattern to
 combat obsolete items.
 * Classification depends on the pattern of issues from stores.

 F – Fast moving
 S – Slow moving
 N – Non Moving
 The items are usually grouped in periods of 12 months.

 It helps to avoid investments in non moving or slow items.

 It is also useful in facilitating timely control.

 For analysis, the issues of items in past two or three years are considered.

 If there are no issues of an item during the period, it is “N” item.

 Then up to certain limit, say 10-15 issues in the period, the item is “S” item.

 The items exceeding such limit of no. of issues during the period are “F”
items.

 The period of consideration & the limiting number of issues vary from
organization to organization
Thank You