ABC Analysis & its Case Study

This Presentation consists of basic concepts of ABC analysis (which is an Inventory categorization technique for effective management of Inventory) & a case study on it.

1. Case Study on-‘ABC Analysis’ Semester VII Production Planning & Control Affan Dabir Roll No. – 1120717 (B .E .Mechanical)

2. VILFREDO PARETO (1848-1923 ) 20% of population owns 80% of nations wealth. 20% of employees cause 80% of problems. 20% of items accounts for 80% of firms expenditure. The Pareto principle

3. What is ABC Analysis ? ‘ABC Analysis’ is an Inventory Categorization Technique in which the items in the Inventory are divided into three categories as follows :- Category “A” Items Category “B” Items Category “C” Items This technique helps to exercise selective control when confronted with large number of items rationalizing the number of orders, number of items & reduces the inventory.

4. Category ‘A’ Items The most Important Items of the Company Accounts for only 10 to 25 % of the total Inventory Items Accounts for 70 to 80 % of the Annual consumption value of the Company.(which is the Highest Value) Have very Tight Inventory Control Managed by Top level Management

5. Category ‘B’ Items Less Important Items than ‘A’ Items but more Important than ‘C’ Items of the Company Accounts for 25 to 30 % of the total Inventory Items Accounts for 15 to 25 % of the Annual consumption value of the Company Have Intermediate Inventory Control Managed by Middle level Management

6. Category ‘C’ Items Marginally Important Items of the Company Accounts for 45 to 50 % of the total Inventory Items Accounts for 5 to 10 % of the Annual consumption value of the Company Have Low Inventory Control Managed by Middle & lower level Management

7. Percentage of cost Percentage of items

8. (a ) Classify the items of inventories determining the expected use in units and the price per unit for each item. (b ) Determine the total value for each item by multiplying the expected units by its unit price . i.e. (Annual demand) x (item cost per unit) (c ) Rank the items in accordance with the total value, giving first rank to the items with highest total value and so on . (d ) Compute the ratio (percentages) of number of units of each item to total units of all items and the ratio of total value of each item to total value of all items . (e ) Combine items on the basis of their relative value to form three categories A, B and C. Steps for implementation of ABC analysis are :-

9. Case Study Subject :- Inventory Management using ABC Analysis in ‘Scooters India Limited’ (SIL), Lucknow. Scooters India Limited (SIL) is a small manufacturer in Lucknow. The company is an ISO 9001:2000 and ISO:14001 Company. The company is principally engaged in the business of manufacturing and sales of motor vehicles and spare-parts(Automobile). It designs , develops , manufactures and market a range of conventional and non-conventional fuel driven three-wheelers. There is a manufacturing plant of company at Lucknow & It has own marketing network of Regional Sales offices to fulfill customer's requirements in the areas of sales and services .

10. Objectives :- (a ) To achieve 10% increase in production. (b ) To achieve 5% decrease in cost. (c ) Rationalization of Manpower. (d ) To reduce energy input . The company manufactures various types of : ( A) Three-wheelers which includes Vikram 410G, Vikram 450D, Vikram 600G , Vikram 750D, Vikram 750D and Vikram EV. (B) Spares (C) Petrol, Diesel and Lubricants

11. (a) Classify the items of inventories determining the expected use in units and the price per unit for each item ( b) Determine the total value for each item by (Annual demand) x (item cost per unit)

12. Rank 1 2 3 4 5 6 7

13. Conclusion :- Company have problems in procurement and handling of raw materials for finished products. An analysis is made to the management of inventory in the company. It develops an approach if adopted by company that would result in a more efficient utilization of financial resources for finished inventories. The study thus suggests some recommendations to improve certain things in the company inventory policy . If these recommendations are considered, the company's inventory management situation will rise a lot .

14. Review of stock-levels :- “A ” Category Items have greater impact on projected investment and purchasing capacity, and therefore should be managed most in terms of minimum and maximum inventory levels.

15. B. Cycle counting :– For higher usable items ,there is more possibility in inventory errors. Therefore, higher priority items should cycle counted more frequently to ensure accurate record balances .

16. Identifying items for potential consignment :– Since “A” items tend to have a greater impact on investment, these would be the best inventories to investigate the potential for alternative stocking arrangements that would reduce investment liability and associated carrying costs .