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ABC ANALYSIS
DR.ANJALATCHI M.SC(N) MD(AM)
MBA(HA)
LEARNING OBJECTIVE
• Introduction
• Definition
• Objective
• Method of ABC analysis
• ABC classification
• Procedure of ABC classification
• Control of ABC
• Advantage
• Limitation
• Summary
• Conclusion
• bibliography
Introduction
Definition of ABC analysis
ABC analysis
• It is the process of classifying items by using
values as measures.
objectives
• To frame policy guidelines regarding control of
items.
• To classify the items A items, B items, C items
• Expensive items to be branded A, constitute
10%, value around 70%.
• Least items to be branded as C , constitute
70% but value 10%
METHOD OF ABC
• Also called pareto analysis. In ABC analysis, the
entire lot of inventory is classified into three
groups based on their annual value and not on
their individual cost given as:
• Class A: high value items, which accounts for
majors share of annual inventory value. Stricter
control must obliviously be applied on these
items right from the initial stages of estimating
requirements, fixing the minimum stocks, lead
time.
Category A Items
• Class B Item: medium value items, which do
not belong to either of the classes and not so
strict control procedure , need be followed in
regard to the items in this group.
Category B items
• Class C items: low values items, but are
required in large quantities and consist of
various types and varieties like clips, washers.
It needs only a simple and inexpensive system
of control in which some of the routine may
be relaxed
Category C Items
Example
Philosophy behind
When and why to use it
CONTROL
• Class A items: are controlled and purchased
only on as required basis to minimize carrying
cost. Higher level control is exercised, these
being high value items.
• Class B Items: it come in between A and C on
degree of control.
• Class C Items: can be purchased in bulk for the
requirement of the entire year, being of low
value. The control is exercised at lower level.
ABC CLASSICIFICATION
ADVANTAGES
• Provides a mechanism for identifying items.
• It helps in economizing ones effort to achieve
greater results.
• It help to segregating those items which ought to
be given priority to maximize results.
• Usefulness of this management (A category items
70% results can be achieved with just 5 % effort)
• Minimize the other items to find out
• Proper use of valuable time of store personnel
• Simple no confusing formula as involved.
LIMITATION
• It is not convenient to compute and carry out this
analysis.
• More chance of deterioration in storage exists
• Loose the control on C may results in shortages
• ABC focuses on money value and not on
functional importance of such items, resulting in
shortage of critical items.
• ABC does not take into account
• ABC ignores market conditions, availability,
competitions, variations etc.
Summary
• Still now we have discussed about ABC
analysis like introduction, definition,
objectives, methods, classification,
control, advantages, limitation of
inventory system. I hope you all
understand about ABC analysis and its
significance.
Conclusion

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unit-vii material management -ABC analysis ppt

  • 2. LEARNING OBJECTIVE • Introduction • Definition • Objective • Method of ABC analysis • ABC classification • Procedure of ABC classification • Control of ABC • Advantage • Limitation • Summary • Conclusion • bibliography
  • 4. Definition of ABC analysis
  • 5. ABC analysis • It is the process of classifying items by using values as measures.
  • 6. objectives • To frame policy guidelines regarding control of items. • To classify the items A items, B items, C items • Expensive items to be branded A, constitute 10%, value around 70%. • Least items to be branded as C , constitute 70% but value 10%
  • 7. METHOD OF ABC • Also called pareto analysis. In ABC analysis, the entire lot of inventory is classified into three groups based on their annual value and not on their individual cost given as: • Class A: high value items, which accounts for majors share of annual inventory value. Stricter control must obliviously be applied on these items right from the initial stages of estimating requirements, fixing the minimum stocks, lead time.
  • 9. • Class B Item: medium value items, which do not belong to either of the classes and not so strict control procedure , need be followed in regard to the items in this group.
  • 11. • Class C items: low values items, but are required in large quantities and consist of various types and varieties like clips, washers. It needs only a simple and inexpensive system of control in which some of the routine may be relaxed
  • 15. When and why to use it
  • 16.
  • 17. CONTROL • Class A items: are controlled and purchased only on as required basis to minimize carrying cost. Higher level control is exercised, these being high value items. • Class B Items: it come in between A and C on degree of control. • Class C Items: can be purchased in bulk for the requirement of the entire year, being of low value. The control is exercised at lower level.
  • 19. ADVANTAGES • Provides a mechanism for identifying items. • It helps in economizing ones effort to achieve greater results. • It help to segregating those items which ought to be given priority to maximize results. • Usefulness of this management (A category items 70% results can be achieved with just 5 % effort) • Minimize the other items to find out • Proper use of valuable time of store personnel • Simple no confusing formula as involved.
  • 20. LIMITATION • It is not convenient to compute and carry out this analysis. • More chance of deterioration in storage exists • Loose the control on C may results in shortages • ABC focuses on money value and not on functional importance of such items, resulting in shortage of critical items. • ABC does not take into account • ABC ignores market conditions, availability, competitions, variations etc.
  • 21. Summary • Still now we have discussed about ABC analysis like introduction, definition, objectives, methods, classification, control, advantages, limitation of inventory system. I hope you all understand about ABC analysis and its significance.