ABC ANALYSIS THEORY

BY
 SOURABH PAUL(BM-
09214)
 ZIAUDDIN(BM-09238)
WHAT IS INVENTORY?
The term Inventory is defined as the
systematic control and regulation of
purchase,storage and usage of
materials in such a way so as to
maintain an even flow of production
and at the same time avoiding
excessive investment in inventories
 WHAT IS ABC ANALYSIS?
 ABC Analysis divides the total inventory into 3 classes
A,B and C using the rupee volume as follows:

 Class “A” items constitute the most important class of

inventories so far as the proportion in the total
revenue of inventory.The “A” items consist of
approximately 15% of the total items, accounts for 80%
of the total material usage.The 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
efforts can result in large savings.
 Class “B” items constitute an intermediate
position ,which approximately 35% of the total
items, accounts for approximately 15% of the
total material consumption.These items merit a
formalized inventory system & periodic attention
on the purchase and stores management.

 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 here.
 EXAMPLE

In Shoes, Leather forms A class

materials,Sole forms B class
materials and lace forms C class
materials.

(this is ABC Analysis in inventory

management)
Share of money values
in different classes

ITEM ITEM(%) MONEY

VALUE(%)
A 10 70

B 20 20

C 70 10
CHARACTERSTICS OF
DIFFERENT CLASSES
ITEMS
 CHARACTERSTICS OF CLASS “A” ITEMS

 High consumption value.

 Very strict control.
 No safety stocks or very low safety stocks.
 Maximum follow-up or expediting.
 Rigorous value analysis.
 Must be handled by senior officers.
 Centralized purchasing.
 Frequent ordering or weekly deliveries.
 As many suppliers are possible.
 Weekly control statements.
 Accurate forecasts in materials planning.
 CHARACTERSTICS OF CLASS “B” ITEMS
 Moderate consumption value.
 Moderate control.
 Low safety stocks.
 Periodic follow-up.
 Moderate value analysis.
 Can be handled by middle management.
 Centralized and decentralized purchasing.
 Three or more reliable sources of supply.
 Ordering once in three months.
 Monthly control reports.
 Estimates based on past data or present.
 CHARACTERSTICS OF CLASS “C” ITEMS
 Low Consumption value.
 Loose control.
 High Safety Stocks.
 Follow-up and expediting in exceptional cases.
 Minimum value analysis.
 Can be full delegated.
 Decentralized purchasing.
 Three reliable sources for supply.
 Bulk ordering once in six months.
 Quarterly control reports.
 Rough estimates for planning.
 CONCLUSION
ABC Analysis is a vital method for
controlling inventory, in which, more
effort is taken to control the Category
A items which deliver the greatest
monetary advantage,whereas control
on Category B items are moderate and
control on Category C items are kept
under minimum control.
Do you know ...........

'A' class items are also usually 'Fast Moving' items of

inventory?                      

And'C' class items are also usually 'Slow / Non Moving'

items of inventory ?

For effective management, you need to classify 'A' items

into further A1, A2 classes for better identification of and
control on 'A' class inventory as also on B1,B2 of B class
items as some of them need more focus than other B class
items. 
THANK YOU