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ABC Analysis Report Example

Vilfredo Pareto observed that in many situations, approximately 20% of causes create 80% of effects. This is known as the Pareto principle or the 80/20 rule. ABC analysis is a method used to categorize inventory items based on their value and usage. Class A items account for around 20% of inventory but 80% of value, Class B items are 30% of inventory and 15% of value, and Class C items are 50% of inventory but only 5% of value. The document provides steps to conduct ABC analysis on inventory data, including calculating total usage, determining the usage percentage of each item, sorting items into categories, and determining the appropriate control level for each category.

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itskarthee
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137 views

ABC Analysis Report Example

Vilfredo Pareto observed that in many situations, approximately 20% of causes create 80% of effects. This is known as the Pareto principle or the 80/20 rule. ABC analysis is a method used to categorize inventory items based on their value and usage. Class A items account for around 20% of inventory but 80% of value, Class B items are 30% of inventory and 15% of value, and Class C items are 50% of inventory but only 5% of value. The document provides steps to conduct ABC analysis on inventory data, including calculating total usage, determining the usage percentage of each item, sorting items into categories, and determining the appropriate control level for each category.

Uploaded by

itskarthee
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 8

5/4/2012

ABC ANALYSIS

VILFREDO PARETO (1848-1923)

20% of population owns 80% of nations wealth


20% of employees cause 80% of problems
20% of items accounts for 80% of firms
expenditure

5/4/2012

ABC ANALYSIS
Percentage of
items

Percentage
value of annual
usage

Class A items

About 20%

About 80%

Close day to day


control

Class B items

About 30%

About 15%

Regular review

Class C items

About 50%

About 5%

Infrequent review

Example 1

Percentage of
items

Percentage
value of annual
usage

Class A items

About 20%

About 80%

Close day to day


control

Class B items

About 30%

About 15%

Regular review

Class C items

About 50%

About 5%

Infrequent review

5/4/2012

STEP NUMBER 1
CALCULATE THE TOTAL SPENDING PER YEAR
Item Number

Unit cost

Annual demand

Total cost per


year

101

48,000

240,000

102

11

2,000

22,000

103

15

300

4,500

104

800

6,400

105

4,800

33,600

106

16

1,200

19,200

107

20

18,000

360,000

108

300

1,200

109

5,000

45,000

110

12

500

6,000

Total usage

737,900

Total cost per year: Unit cost * total cost per year

STEP NUMBER 2: CALCULATE THE USAGE OF


ITEM IN TOTAL USAGE
Item Number

Unit cost

Annual
demand

Total cost per Usage as a %


year
of total usage

101

48,000

240,000

32.5%

102

11

2,000

22,000

3%

103

15

300

4,500

0.6%

104

800

6,400

0.9%

105

4,800

33,600

4.6%

106

16

1,200

19,200

2.6%

107

20

18,000

360,000

48.8%

108

300

1,200

0.2%

109

5,000

45,000

6.1%

110

12

500

6,000

0.8%

737,900

100%

Total usage

Usage as a % of total usage = usage of item/total usage

5/4/2012

STEP NUMBER 3:
SORT THE ITEMS BY USAGE
Item
Number

Cumulative
% of items

Unit
cost

Annual Total
demand cost per
year

Usage
as a %
of total
usage

Cumulative
% of total

107

10%

20

18,000

360,000

48.8%

48.8%

101

20%

48,000

240,000

32.5%

81.3%

109

30%

5,000

45,000

6.1%

87.4%

105

40%

4,800

33,600

4.6%

92%

102

50%

11

2,000

22,000

3.0%

94.9%

106

60%

16

1,200

19,200

2.6%

97.5%

104

70%

800

6,400

0.9%

98.4%

110

80%

12

500

6,000

0.8%

99.2%

103

90%

15

300

4,500

0.6%

99.8%

108

100%

300

1,200

0.2%

100%

737,900

100%

Total
usage

STEP 4. RESULTS OF CALCULATION


Cathegory

Items

Percentage
of items

Percentage
usage (%)

Action

107, 101

20%

81.6%

Close control

109, 105, 102,


106

40%

16.2%

Regular review

104, 110, 103,


108

40%

2.5%

Infrequent
review

5/4/2012

Additional rules for ABC analysis


Cathegory

Percentage of items

Percentage of usage

5-25%

40- 80%

20-40%

15-40%

40-75%

5-20%

EXAMPLE NUMBER 2
Item number

Annual quantity
used

Unit value

75

80

150,000

0.9

500

3.0

18,000

0.20

3,000

0.30

20,000

0.10

10,000

5/4/2012

STEP NUMBER 1
Item number

Annual
quantity used

Unit value

Usage per
year

75

80

6,000

150,000

0.9

135,000

500

1,500

18,000

0.20

3,600

3,000

0.30

900

20,000

0.10

2,000

10,000

20,000

Total usage

169,000

STEP NUMBER 2
Item
number

Annual
quantity
used

Unit value

Usage per
year

Percentage
in totat
usage (%)

75

80

6,000

3. 51%

150,000

0.9

135,000

79. 8%

500

3.0

1,500

0. 87%

18,000

0.20

3,600

2.1%

3,000

0.30

900

0.53%

20,000

0.10

2,000

1.18%

10,000

20,000

11.8%

169,000

1%

Total usage

5/4/2012

STEP NUMBER 3
Item
number

Cumulative
% of items

Annual
quantity
used

Unit
value

Usage
per
year

Percenta
ge
in totat
usage (%)

Cumulativ
e % of total

14%

150,000

0.9

135,000

79.8%

79.8%

29%

10,000

20,000

11.8%

91.6%

42%

75

80

6,000

3.51%

95.11%

56%

18,000

0.20

3,600

2.1%

97.21%

71%

20,000

0.10

2,000

1.18%

98.39%

84%

500

3.0

1,500

0.87%

99.46%

100%

3,000

0.30

900

0.53%

1%

169,000

Total
usage

STEP NUMBER 4
Cathegory

Items

Percentage
of items

Percentage
usage (%)

Action

15%

79.8%

Close control

7,1

30%

15.31%

Regular review

3,4,5,6

55%

4.89%

Infrequent
review

Cathegory

Percentage of items

Percentage of usage

5-25%

40- 80%

20-40%

15-40%

40-75%

5-20%

5/4/2012

THANK YOU FOR YOUR ATTENTION!

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