ABC Analysis - A quick note for revision

Santhosh Thaikkadan (CS Professional Programme Student) (876 Points)

15 March 2011

ABC Analysis – A quick note for revision

ABC analysis
- It is the Methods of Inventory/Material control

ABC ANALYSIS STOCK LEVELS EOQ (Economic Order Quantity) Perpetual Inventory System

What is Inventory?
- The term 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.”
What is ABC Analysis?
- ABC analysis divides the total inventory into 3 classes A,B & C using the rupee volume, as follows:
- class “A” items constitute the most important class of inventories so far as the proportion in the total value of inventory .The “A” items consists of approximately 15% of the total items , accounts for 80% of the total material usage. This items merit a tightly controlled inventory system with constant attention to the purchase & stores management. A larger effort per item on only a few items will cost only moderately, but the effort can result in larger savings.
- class “B” items constitute an intermediate position, which constitute approximately 35% of the total items, accounts for approximately 15% of the total material consumption. These items merit a formalized inventory system & periodic attention but the purchase & the stores management.
- class “C” items are quite negligible. It consists remaining 50% items, accounting only 5% of the monetary value of total material usage . Quite relaxed inventory procedures are used.
ABC ANALYSIS OF INVENTORY Class “A” Class “B” Class “C”
Ex - In shoes leather forms A grade materials , sole forms B grade materials and shoe lace forms C grade materials this is ABC analysis in inventory management
ABC Analysis in Medical Stores Inventory Control
- Background: The basic principle of inventory control is ABC based on cost criteria .
- Methods: Based on ABC matrix, economic analysis of drug expenditure of priced vocabulary of medical stores (PVMS)
- section 01 for the year 2003 of a 190 bedded service hospital was under taken.
- Result: Out of 493 drugs in PVMS section 01, only 325 drugs were being used in the reference hospital. The total cost of drugs used
- was Rupees 55,23,503 . Of these 325 drugs, 47(14.4%) drugs were Category A , consuming 70% of total expenditure, 73 (22.46 %)
- drugs Category B consuming 20% and rest 205 drugs (63.7%) Category C drugs cost only 10% of expenditure.
ITEM ITEMS(%) MONEY VALUE(%) A 10 70 B 20 20 C 70 10
“ A “ Class items (High Consumption Value) “ B” Class items (Moderate Consumption Value) “ C” Class items (Low Consumption Value) 1.Very strict control. 1.Moderate control
- Loose control

2. No safety stocks or very low safety stocks. 2.Low safety stocks 2.High safety stocks. 3.Maximium follow-up & expediting. 3.Periodic follow-up. 3.Follow –up & expediting in exceptional cases. 4.Rigorous value analysis. 4.Moderate value analysis. 4.Minimum Value Analysis. 5.Must be handled by senior officers. 5. Can be handled by middle management. 5. Can be fully delegated.