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ABC

ABC Analysis is a method for classifying inventory items into A, B, and C categories based on their value and usage, with A items being the most valuable and requiring tight control. The document also discusses other inventory classification methods such as VED, SDE, FSN, and HML analyses, each focusing on different criteria like criticality, availability, utilization, and cost. Additionally, it provides examples of item classification based on annual usage and cost.

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10 views

ABC

ABC Analysis is a method for classifying inventory items into A, B, and C categories based on their value and usage, with A items being the most valuable and requiring tight control. The document also discusses other inventory classification methods such as VED, SDE, FSN, and HML analyses, each focusing on different criteria like criticality, availability, utilization, and cost. Additionally, it provides examples of item classification based on annual usage and cost.

Uploaded by

esmail mitwaly
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ABC ANALYSIS

(ABC = Always Better Control)


• is a method for determining level of control and
frequency of review of inventory items
• A Items – typically 20% of the items accounting
for 80% of the inventory value
• B Items – typically an additional 30% of the
items accounting for 15% of the inventory value
• C Items – Typically the remaining 50% of the
items accounting for only 5% of the inventory
Classifying Items
as ABC
% Annual $ Usage Class % $ Vol % Items
100 A 80 15
B 15 30
80
C 5 55
60
40
A
20 B C
0
0 50 100 150
% of Inventory Items
‘A’ ITEMS
Small in number, but consume large amount
of resources
Must have:
•Tight control
•Rigid estimate of requirements
•Strict & closer watch
•Low safety stocks
•Managed by top management
‘B’ ITEM
Intermediate
Must have:
•Moderate control
•Purchase based on rigid requirements
•Reasonably strict watch & control
•Moderate safety stocks
•Managed by middle level management
‘C’ ITEMS
Larger in number, but consume lesser amount
of resources
Must have:
•Ordinary control measures
•Purchase based on usage estimates
•High safety stocks
ABC analysis does not stress on items
those are less costly but may be vital
ANNUAL COST CUMMULATIVE
ITEM % ITEM
[Rs.] COST [Rs.]
COST %
ABC
1 90000 90000
10 % 70 %
A 2 50000 140000
3 20000 160000
N 4 7500 167500
20 % 20 %
A 5 7500 175000
6 5000 180000
L
7 4500 184500
Y 8 4000 188500
9 2750 191250
S
10 1750 193000
I 11 1500 194500

S 12 1500 196000
13 500 196500 10 %
70 %
14 500 197000
15 500 197500
WORK 16 500 198000
SHEET 17 500 198500
18 500 199000
19 500 199500
20 500 200000
VED ANALYSIS
• Based on critical value & shortage cost of an
item
–It is a subjective analysis.
•Items are classified into:
Vital:
•Shortage cannot be tolerated.
Essential:
•Shortage can be tolerated for a short
period.
Desirable:
Shortage will not adversely affect, but
may be using more resources. These must
be strictly Scrutinized
SDE ANALYIS
Based on availability
Scarce
Managed by top level management
Maintain big safety stocks
Difficult
Maintain sufficient safety stocks
Easily available
Minimum safety stocks
FSN ANALYSIS
Based on utilization.
Fast moving.
Slow moving.
Non-moving.
Non-moving items must be periodically
reviewed to prevent expiry
& obsolescence
HML ANALYSIS
Based on cost per unit
Highest
Medium
Low
This is used to keep control over consumption
at departmental level for deciding the frequency
of physical verification.
Classify the following items
as A, B, or C.
Item Annual vol.(units) Unit cost

101 48,000 5

102 2,000 11

103 300 15

104 800 8

105 4,800 7

106 1,200 16

107 18,000 20

108 300 4

109 5,000 9

110 500 12
Item Annual vol.(units) Unit cost Annual usage(l.e)

101 48,000 5 240000

102 2,000 11 22000

103 300 15 4500

104 800 8 6400

105 4,800 7 33600

106 1,200 16 19200

107 18,000 20 360000

108 300 4 1200

109 5,000 9 45000

110 500 12 6000


Annual Annual Descending
Item Unit cost
vol.(units) usage(l.e) order
101 48,000 5 240000 2

102 2,000 11 22000 5

103 300 15 4500 9

104 800 8 6400 7

105 4,800 7 33600 4

106 1,200 16 19200 6

107 18,000 20 360000 1

108 300 4 1200 10

109 5,000 9 45000 3

110 500 12 6000 8


Annual Descending
Annual
Item Unit cost usage(l.e) order
vol.(units)

107 20 18,000 360000 1

240000 2
101 5 48,000

109 9 5,000 45000 3

105 7 4,800 33600 4

102 11 2,000 22000 5

106 16 1,200 19200 6

104 8 800 6400 7

110 12 500 6000 8

103 15 300 4500 9

1200 10
Item Annual Descending Cumulative
order Unit Annual usage(l.e) order percentage
cost vol.(units)

1 107 20 18,000 360000 1 48.78

2
‫اإلجــــــــــــــــــــابــــــــــــــــــــــــــة‬
101 5 48,000 240000 2 81.31

3 109 9 5,000 45000 3 87.41

4 105 7 4,800 33600 4 91.96

5 102 11 2,000 22000 5 94.94

6 106 16 1,200 19200 6 97.54

7 104 8 800 6400 7 98.41

8 110 12 500 6000 8 99.22

9 103 15 300 4500 9 99.83

10 108 4 300 1200 10 100


Item Annual Descending Cumulative
order Unit Annual usage(l.e) order percentage
cost vol.(units)

1 107 20 18,000 360000 1 48.78

2
‫اإلجــــــــــــــــــــابــــــــــــــــــــــــــة‬
101 5 48,000 240000 2 81.31

3 109 9 5,000 45000 3 87.41

4 105 7 4,800 33600 4 91.96

5 102 11 2,000 22000 5 94.94

6 106 16 1,200 19200 6 97.54

7 104 8 800 6400 7 98.41

8 110 12 500 6000 8 99.22

9 103 15 300 4500 9 99.83

10 108 4 300 1200 10 100


‫اإلجــــــــــــــــــــابــــــــــــــــــــــــــة‬
‫‪• Total =737900 L.E‬‬

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