written 7.8 years ago by | modified 2.8 years ago by |
Mumbai University > Mechanical Engineering > Sem 7 > Production planning and control
Marks: 5M
Year: May 2016
written 7.8 years ago by | modified 2.8 years ago by |
Mumbai University > Mechanical Engineering > Sem 7 > Production planning and control
Marks: 5M
Year: May 2016
written 7.8 years ago by |
In materials management, the ABC analysis (or Selective Inventory Control) is an inventory categorization technique. ABC analysis divides an inventory into three categories-
"A items" with very tight control and accurate records,
"B items" with less tightly controlled and good records, and "
“C items" with the simplest controls possible and minimal records.
The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance.
'A' items are very important for an organization. Because of the high value of these 'A' items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity. 'B' items are important, but of course less important than 'A' items and more important than 'C' items. Therefore 'B' items are intergroup items. 'C' items are marginally important.
ABC analysis categories
There are no fixed threshold for each class, different proportion can be applied based on objective and criteria. ABC Analysis is similar to the Pareto principle in that the 'A' items will typically account for a large proportion of the overall value but a small percentage of number of items.
Example of ABC class are
‘A’ items – 20% of the items accounts for 70% of the annual consumption value of the items
‘B’ items - 30% of the items accounts for 25% of the annual consumption value of the items.
‘C’ items - 50% of the items accounts for 5% of the annual consumption value of the items.
Another recommended breakdown of ABC classes:
"A" approximately 10% of items or 66.6% of value
"B" approximately 20% of items or 23.3% of value
"C" approximately 70% of items or 10.1% of value
Advantages of A.B.C. method of Inventory Control:
Disadvantages:
This analysis suffers from the following drawbacks:
In spite of the above mentioned limitations, the ABC analysis is very popular method of inventory control. It is an effective instrument in reducing the cost of materials in the store house.