ABC Analysis

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

1. Presented By: Shubham Kushwaha (167554)

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: Total Cost per Year/Total Usage *100

9. Graphical Representation Percentage of annual usage 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 – –

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.

13. THANK YOU