18-08-2012, 11:11 AM
INVENTORY CONTROL TECHNIQUE
INVENTORY CONTROL TECHNIQUE.ppt (Size: 735.5 KB / Downloads: 26)
ABC ANALYSIS - 1
One of the most important considerations of control is the value of annual consumption of inventory items in a year.
Only a small number of inventory items consume a very large share of inventory consumption during the year.
A little larger number of inventory items covers a moderate share of annual inventory consumption.
A very large number of items just cover a very small share of annual inventory consumption.
These facts gave birth to the concept of ABC analysis.
ABC ANALYSIS - 2
It has been observed that in an industrial unit only 10% of items have 70% of the annual inventory consumption,
20% of the items have 20% of annual inventory consumption, and
70% of the items have only 10% of the annual inventory consumption.
Since 70% of the annual consumption of inventory is covered by only 10% of the items in the inventory, these items deserve highest attention and are classified as ‘A’ items.
Similarly 20% of the items covering 20 % of the inventory investment are B class items
Balance 70% of the inventory items are termed as C class items.
STEPS IN ABC ANALYSIS
The steps in computing ABC analysis are:
a Determine the annual usage in units for each item for the past one-year.
b. Multiply the annual usage quantity with the average unit price of each item to calculate the annual usage in US$ for each item.
c. Item with highest dollar usage annually is ranked first. Then the next lower annual usage item is listed till the lowest item is listed in the last.
d. Table 1 shows ranks of the items according to the annual usage in US$. for 10 items.
e. Arrange the items in the inventory by cumulative annual usage (dollars) and by cumulative percentage. Categorize the items in A, B , and C categories.