ALWAYS BETTER CONTROL

ABC ANALYSIS management

1. ABC ANALYSIS SUDESHNA BANERJEE M.SC (N) 2 ND YEAR

2. INVENTORY INVENTORY is defined as “the systematic control and regulation of purchase, storage and usage of materials in such a way so as to maintain an even flow of production and at the same time avoiding excessive investment in inventories”

3. ABC analysis ABC = Always Better Control A technique which would enable a busy executive to chase those activities ardently which would quicken the wheels of administrative machinery F irst introduced by an AMERICAN FIRM- GENERIC ELECTRIC COMPANY Based on Pareto’s principle of “Vital few & trivial many” based on the capital investment of the item

4. “A” ITEMS Small in number, but consume large amount of resources (10 % items consume about 70% of budget) Must have: Tight control Strict & close watch Low safety stocks Management by top level managers

5. “B ITEMS” Intermediate (20 % consume 20% of financial resources) Must have: Moderate control Purchase based on rigid requirements Reasonably strict watch & control Safety stocks moderate Managed by middle level management

6. “C ITEMS” Larger in number, but consume lesser amount of resources (70 % items account for just 10% of budget )   Must have: Ordinary control measures Purchase based on usage estimates High safety stocks ABC analysis does not stress on items those are less costly but may be vital

7. PRINCIPLES OF ABC ANALYSIS The analysis depends on its annual consumption values The limits for ABC categorization are not uniform but depends on the size of organization

8. Cont … The analysis does’nt depend on the importance of items rather based on material price, & available status of material, material physical characteristic(durability) & frequency of material usage It also depends on degree & characteristics of controls to be exercised by the management

9. 6-STEPS USED TO PERFORM AN ABC ANALYSIS Identify the objective and the analysis criterion Collect data about the analyzed population Sort out the list by decreasing impact

10. Cont … Calculate the accumulated impact and the percentage Identify the classes ‡ Analyze the classes and take appropriate decisions

11. ADVANTAGES OF ABC ANALYSIS CONTROL : helps to maintain the stock, right inventory allows a company to control over supply & under supply COST : Once a company has determined which items fall into ABC category it can establish cost reduction initiatives IMPROVED SERVICE

12. DISADVANTAGES; ABC ANALYSIS Considers only the money value not the importance of items for functioning Proper standardization & codification of inventory items is required It gets harder to do correctly the longer you do them

13. SUMMARY Inventory ABC analysis ABC categorization Principles of ABC analysis 6-steps to perform an ABC analysis Advantages Disadvantages