ABC ANALYSIS - 1
• One of the most important considerations of
control is the value of annual consumption of
inventory items in a year.
• Only a small number of inventory items
consume a very large share of inventory
consumption during the year.
• A little larger number of inventory items covers a
moderate share of annual inventory
• A very large number of items just cover a very
small share of annual inventory consumption.
• These facts gave birth to the concept of ABC
ABC ANALYSIS - 2
• It has been observed that in an industrial unit only
10% of items have 70% of the annual inventory
• 20% of the items have 20% of annual inventory
• 70% of the items have only 10% of the annual
• Since 70% of the annual consumption of inventory is
covered by only 10% of the items in the inventory,
these items deserve highest attention and are
classified as ‘A’ items.
• Similarly 20% of the items covering 20 % of the
inventory investment are B class items
• Balance 70% of the inventory items are termed as C
STEPS IN ABC ANALYSIS
The steps in computing ABC analysis are:
a Determine the annual usage in units for each item
for the past one-year.
b. Multiply the annual usage quantity with the average
unit price of each item to calculate the annual usage
in US$ for each item.
c. Item with highest dollar usage annually is ranked
first. Then the next lower annual usage item is listed
till the lowest item is listed in the last.
d. Table 1 shows ranks of the items according to the
annual usage in US$. for 10 items.
e. Arrange the items in the inventory by cumulative
annual usage (dollars) and by cumulative
percentage. Categorize the items in A, B , and C