Abc analysis
- 1. ABC Analysis is the basis for material management processes and helps define how stock is managed. It can form the basis of various activity including leading plans on alternative stocking arrangements (consignment stock), reorder calculations and can help determine at what intervals inventory checks are carried out (for example A class items may be required to be checked more frequently than c class storesInventory Control Application: The ABC classification system is to grouping items according to annual issue value, (in terms of money), in an attempt to identify the small number of items that will account for most of the issue value and that are the most important ones to control for effective inventory management. The emphasis is on putting effort where it will have the most effect.All the items of inventories are put in three categories, as below : A Items : These Items are seen to be of high Rupee consumption volume. \" A\" items usually include 10-20% of all inventory items, and account for 50-60% of the total Rupee consumption volume.B Items : \" B\" items are those that are 30-40% of all inventory items, and account for 30-40% of the total Rupee consumption volume of the inventory. These are important, but not critical, and don't pose sourcing difficulties.C Items : \" C\" items account for 40-50% of all inventory items, but only 5-10% of the total Rupee consumption volume. Characteristically, these are standard, low-cost and readily available items. ABC classifications allow the inventory manager to assign priorities for inventory control. Strict control needs to be kept on A and B items, with preferably low safety stock level. Taking a lenient view, the C class items can be maintained with looser control and with high safety stock level. The ABC concept puts emphasis on the fact that every item of inventory is critical and has the potential of affecting ,adversely, production, or sales to a customer or operations. The categorization helps in better control on A and B items.In addition to other management procedures, ABC classifications can be used to design cycle counting schemes. For example, A items may be counted 3 times per year, B items 1 to 2 times, and C items only once, or not at all.<br />Suggested policy guidelines for A , B & C classes of items<br />A items (High cons. Val) B items (Moderate cons.Val) C item (Low cons. Val) Very strict cons. control Moderate controlLoose controlNo or very low safety stockLow safety stockHigh safety stockPhased delivery (Weekly)Once in three monthsOnce in 6 monthsWeekly control reportMonthly control reportQuarterly reportMaximum follow upPeriodic follow upExceptionalAs many sources as possibleTwo or more reliableTwo reliableAccurate forecastsEstimates on past dataRough estimateCentral purchasing /storageCombination purchasingDecentralisedMax.efforts to control LTModerateMin.clerical effortsTo be handled by Sr.officersMiddle level Can be delegated <br />