Scribd
Upload
43 views

Advantages of ABC

ABC analysis allows for strict control over high-cost inventory items while lower-cost items require less supervision. This focuses managerial time on important items and reduces overall inventory investment and storage costs. ABC analysis saves management time by prioritizing attention on key items rather than all items equally.

Uploaded by

Praveen Thulasi
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
43 views

Advantages of ABC

ABC analysis allows for strict control over high-cost inventory items while lower-cost items require less supervision. This focuses managerial time on important items and reduces overall inventory investment and storage costs. ABC analysis saves management time by prioritizing attention on key items rather than all items equally.

Uploaded by

Praveen Thulasi
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

ADVANTAGES OF ABC ANALYSIS A strict control is exercised on the items, which represent a high percentage of the material costs

.Managerial time is spent on A items whereas clerical staff with least managerial supervision can handle C items and sometimes B items. Equal attention to all the items of stores is not desirable because it will not be a cost effective option for the firm. Concentrating on all the items of stores is likely to have a defused effect on all the items, irrespective of the value of consumption. Therefore, ABC analysis should be followed to give due attention to the items, which they deserve, keeping in view their value of consumption. Investment in inventory is reduced to the minimum possible level because a reasonable quantity of A items representing a significant portion of the materials costs is purchased. To reduce investment in materials, close control of A items contributes much more than close control of C items. Storage cost is reduced, as a reasonable quantity of materials, which account for high percentage of value of consumption, will be maintained in the stores. with the introduction of the ABC analysis, management time is saved because attention is required to be paid only to some of the items rather than on all items it becomes possible to concentrate all effort in areas, which need genuine efforts. it is most effective and economical method as it is based on selective approach. it helps in placing the orders, deciding the quantity of purchase, safety stock, etc., thus saving the enterprise from unnecessary stock-cuts or surpluses and their resultant consequences. This may be well shown by an example where average inventory is one-half of the order quantity o o o o o o Complexity reduction Optimum utilization of time Reduction in operating expenses Reduction in stock outs Reduction in refusals Quantity discounts

You might also like