02-05-2017, 10:26 AM
In material management, the ABC (or Selective Inventory Control) analysis is an inventory categorization technique. The ABC analysis divides an inventory into three categories: "articles A" with very precise control and accurate records, "articles B" with less strictly controlled and good records, and "articles C" with the simplest possible controls and minimum records .
The ABC analysis provides a mechanism to identify the elements that will have a significant impact on the total cost of the inventory, while providing a mechanism to identify different categories of actions that will require different management and controls.
The ABC analysis suggests that the inventories of an organization are not of equal value. Therefore, the inventory is grouped into three categories (A, B and C) in order of their estimated importance.
"A" elements are very important to an organization. Due to the high value of these 'A' elements, a frequent value analysis is required. On top of that, an organization needs to choose an appropriate order pattern (eg Just-in-time) to avoid overcapacity. Articles 'B' are important, but of course less important than articles 'A' and more important than articles 'C'. Therefore, the elements 'B' are intergroup elements. The 'C' elements are marginally important.
ABC Analysis Categories
There is no fixed threshold for each class, a different proportion can be applied according to the objective and the criteria. ABC analysis is similar to the Pareto principle in that items 'A' typically represent a large proportion of the total value, but a small percentage of the number of elements.
Example of class ABC:-
• Articles 'A' - 20% of the items represent 70% of the annual consumption value of the items.
• 'B' items: 30% of the items represent 25% of the annual value of the items.
• 'C' items: 50% of the items represent 5% of the annual value of the items.
Another recommended breakdown of ABC classes:
1. "A" approximately 10% of the articles or 66.6% of the value
2. "B" approximately 20% of the articles or 23.3% of the value
3. "C" approximately 70% of the articles or 10.1% of the value
The ABC analysis provides a mechanism to identify the elements that will have a significant impact on the total cost of the inventory, while providing a mechanism to identify different categories of actions that will require different management and controls.
The ABC analysis suggests that the inventories of an organization are not of equal value. Therefore, the inventory is grouped into three categories (A, B and C) in order of their estimated importance.
"A" elements are very important to an organization. Due to the high value of these 'A' elements, a frequent value analysis is required. On top of that, an organization needs to choose an appropriate order pattern (eg Just-in-time) to avoid overcapacity. Articles 'B' are important, but of course less important than articles 'A' and more important than articles 'C'. Therefore, the elements 'B' are intergroup elements. The 'C' elements are marginally important.
ABC Analysis Categories
There is no fixed threshold for each class, a different proportion can be applied according to the objective and the criteria. ABC analysis is similar to the Pareto principle in that items 'A' typically represent a large proportion of the total value, but a small percentage of the number of elements.
Example of class ABC:-
• Articles 'A' - 20% of the items represent 70% of the annual consumption value of the items.
• 'B' items: 30% of the items represent 25% of the annual value of the items.
• 'C' items: 50% of the items represent 5% of the annual value of the items.
Another recommended breakdown of ABC classes:
1. "A" approximately 10% of the articles or 66.6% of the value
2. "B" approximately 20% of the articles or 23.3% of the value
3. "C" approximately 70% of the articles or 10.1% of the value