ABC Analysis and Standardization

ABC Analysis

 ABC analysis is a method used in inventory management to categorize stock

items into three classes based on their relative importance. This helps
organizations prioritize their efforts to manage inventory and reduce costs.
Pareto analysis

 Pareto analysis uses the Pareto principle, also called the 80:20 rule, to analyze
and display data.
 Quallity expert J.M.Juran applied the principle to quality control and found out
80% of problems stem from 20% of the possible causes.
 The main point is., we should focus on the “vital few” problems (those in the
20% category) rather than on the “trivital many” to make the most significant
improvements in product quality
Pareto Chart

 The Pareto Chart is a combination of both the bar chart and the line chart.
 The bar chart shows the frequency of occurrence or defects, whereas the line
graph shows the cumulative data percentage in descending order.
 In Process Analysis, this helps identify the most frequently occurring problems or
defects – or separate the vital few from the useful many.
When You Should Use a Pareto Chart

 When analyzing the root cause data and focusing on the most significant
contributors (the vital few).
 When wanting to understand a broad cause by looking at the component pieces.
 When you need an effective way to share a lot of information quickly.
Codification

 Codification is the process of assigning a number or symbol to each store item,

along with a name, in order to make it easy and convenient to identify.
 Codification is necessary because it involves the assignment of logical and
systematic numbers or alphabets (or both) to help in the simple but accurate
identification of the materials.
Advantages of Codification

The main advantages of codification include:

 Avoidance of long and unwieldy descriptions
 Accurate and logical identification of items
 Avoidance of duplication
 Standardization of purchasing and storage
 Reduction of variety
 Effective planning and high-quality production
Codification

The use of codification also leads to efficiencies in the following areas:

 Purchasing
 Recording
 Accounting
 Computerizing pricing
 Costing
 Indexing
 Inspection
Systems of Codification

 Alphabetical System
 Numerical System
 Decimal System
 Combined Alphabetical and Numerical System
 CHARACTERISTICS OF A GOOD CODING
SYSTEM

 Flexibility: it should be able to keep up with future changes.

 Precision: all codes should be unique.
 Brevity: codes should be precise otherwise it would lose its intended purpose.
 Comprehensive codes should follow a given system this should enable people understand
the code.
 Standardization: helps in standardization of items in the inventory