It covers the basic concepts of ABC analysis, like paretos principle its advantages and disadvantages too.

1. Presented By:
Shubham
Kushwaha

2. Topics to be covered:
 What is ABC Analysis?
 Pareto’s Principle
 Suggested Policy Guidelines:
 Category “A” Items
 Category “B” Items
 Category “C” Items
 Example
 Graphical Representation
 Advantages
 Disadvantages
 References

3. What is ABC Analysis?
 The inventory control technique known as ABC
(Always Better Control) Analysis based on
Pareto’s Principle.
 In this technique items are categorized into
three categories:
Category Units in % Value in %
A 5-10 70-75
B 15-20 15-20
C 70-75 5-10

4. Pareto’s Principle
This principle holds that in given system, a
relative handful of “CAUSES” will produce the
majority of effects.
Examples:
 20% of population owns 80% of nations
wealth.
 20% of customers are responsible for 80% of
sales.
 20% of employees are responsible for the 80%
of results.

5. Suggested Policy Guidelines
“A” Items (High Consumption
Value)
 Tight control.
 Very low safety stock.
 As many sources as possible.
 Weekly control report.
 Managed by top management.

6. “B” Items (Moderate
Consumption Value)
 Moderate control.
 Low safety stock.
 Monthly control report.
 Purchase based on rigid requirements.
 Managed by middle level management.

7. “C” Items (Low Consumption
Value)
 Ordinary control measures.
 Two reliable sources.
 Quarterly report.
 Purchase based on usage estimates.
 High safety stocks.

8. Example:
Item
Number
Per Unit
Cost
Annual
Demand
Total Cost
per Year
Usage as
a % of
Total
Usage
Category
101 90.00 1,000 90,000 38.8%
102 154.00 500 77,000 33.2% 72%
103 17.00 1,550 26,350 11.3%
104 42.86 350 15,001 6.4% 23%
105 12.50 1,000 12,500 5.4%
106 14.17 600 8,502 3.7%
107 0.60 2,000 1,200 0.5%
108 8.50 100 850 0.4% 5%
109 0.42 1,200 504 0.2%
110 0.60 250 150 0.1%
Total
Usage
2,32,057 100%
A
B
C
Usage as a percentage of total
usage:

9. Graphical Representation
Percentageofannualusage
Percentage of inventory items
A Items
B Items
C Items
| | | | | | | | | |
10 20 30 40 50 60 70 80 90 100
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –

10. Advantages
 Ensures control.
 Helps in developing scientific method.
 Storage expenses.
 Maintenance of safety stock.

11. References
 Entrepreneurship – Class XII
 www.youuarticlelibrary.com
 www.boundlessmanagement.com

12. Disadvantages
 Proper standardisation of materials.
 Codification of materials.
 Based on monetary value.