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ABC ANALYSISABC analysis is a basic analytical management tool which enables top management to place the effort where the results will be greatest. This technique is popularly known as Always Better Control or the Alphabetical approach. The technique tries to analyse the distribution of any characteristic by money value of importance in order to determine its priority. In material management, this technique has been applied in areas needing selective control, such as inventory, criticality of items, obsolete stocks, purchasing orders, receipt of materials, inspection, store keeping and verification of bills. A : high value low consumption items. B : high value items and relatively consumption will be moderate. C : low value and high consumption items.
MECHANICS OF ABC ANALYSISCalculate rupee annual issues for each item in inventory by multiplying the unit cost by the number of units issued in a year. Sort all items by rupee annual issues in descending sequence. Prepare a list from these ranked items showing item no., unit cost, annual units issued and annual rupee value of units issued. Starting at the top of the list, compute a running total, item-by-item issue value and the rupee consumption value. Compute and print for each items the cumulative percentages forthe item count and cumulative annual issue value
NORMAL ITEMS IN MOST ORGANISATIONS SHOWS THE FOLLOWING PATTERN5 percent to 10 percent of the top number of items account for about 70 percent of the total consumption value are called A items.
15 percent to 20 percent of the number of items account for 20 percent of the total consumption value are called B items
The remaining number of items account for the balance 15 percent of the total issue value are called C items.
BASIC PRINCIPLES OF ABC ANALYSISThe analysis does not depend upon the unit cost of the items but only on its annual consumption.
It does not depend on the importance of the item.
The limits for ABC categorization are not uniform but will depend upon the size of the undertaking, its inventory as well as the number of items controlled.
LIMITATIONS OF ABC ANALYSISIf there are large number of items, process is cumbersome. We are stressing on annual consumption, time when critical items are not available. Price keeps on fluctuating, can be indicative analysis. There is possibility of holding excess stock of item C.
CASE STUDY ON ABC ANALYSIS OF BISLERI INDIA LTD.
ABOUT THE INDUSTRYCorporate culture over water and water distribution in India is growing rapidly The packaged water business is worth Rs 1000 crore and it is growing at huge 40-50% annually According to BUREAU OF INDIAN STANDARDS, around 1200 bottling plants and 100 brands of packaged water are battling over the market As globalisation opens up opportunities for private players, investing in water and manipulating water scarcity makes increasingly good business sense for corporations
ABOUT BISLERIMineral water under BISLERI was first introduced in MUMBAI in glass bottles in two varieties- bubbly and still in 1965 by Bisleri ltd., a company of Italian origin This company was started by SIGNOR FELICE BISLERI Later PARLE bought over Bisleri India ltd. In 1969 and started bottling mineral water in glass bottles Later PARLE switched over to PVC non-returnable bottles and finally advanced to pet containers Its average growth rate has been around 40% over this period Presently it has 8 plants and 11 franchisees all over India
PRODUCTION PROCESSThe raw material (HDPE, LLDPE, PET) that is ordered in the warehouses is transported to the processing plant In the cap department HDPE and LLDPE which are in the form of granules are granules are emptied into the hopper of the injection moulding machine with a colorant and the caps are produced are automatically packed into cartons The semi finished product is transported, after quality testing has been done to what is called the filling department In preforms department PET material is used to manufacture preforms which are semi finished bottles & they are produced by using injection moulding machine Preforms are tested by the quality assurance department and then they are packed in cartons and transported to the filling department
CONTINUEDIn the blowing department the preforms are blown to form bottles There are two fully automatic blowing machines which are directly connected with the filler machines and about 5 more semi automatic and automatic blowing machines The bottles are directly loaded into the conveyor belt, first bottles passed through UV light to kill the bacteria & bottles are cleaned by pure water, then the bottles are filled to the desired quantity & they are automatically capped And then sticker is put on the bottles then the bottles pass through a screen of light are packed in cartons & stored in the warehouses
ANALYSIS OF BISLERI ON THE LOCATION OF ITS FACTORY
SELECTION OF REGION AVAILABILITY OF RAW MATERIALThe location that has been selected has 4 bore wells on site enough to supply water for whole year so that the company does not have rely on BMC for its water
The company requires HDPE, LLDPE for the production of caps and PET for the bottles, the granules of these are easy available because all the polymer manufacturing companies i.e. RELIANCE & IPCL have distributors in Mumbai
NEARNESS TO THE MARKETThe factory is located in Mumbai
It is located right next to the western express highway therefore making it easier for it to transport the finished goods to the different parts of the city as well out station as well as out state
AVAILABILITY OF POWERParle Bisleri is located in a industrial area therefore there is abudant power available
Parle Bisleri gets its power from TATA Power
They have provided a substation to meet the needs of the factory
TRANSPORT FACILITYBisleri has a fleet of trucks to meet the delivery needs of the company
They eicher trucks and they also transport the finished goods and semi finished goods out of the state as well as within the city
The fleet is of about 10 trucks
SUITABILITY OF CLIMATEBisleri is located in Mumbai which is in the temperate zone
Therefore the temperature is moderate and this area being in near the coast gets high rainfall which is essential for the year round supply of water
ABC ANALYSIS REPORT OF BISLERI INDIA LTD.
S.NO1 2 3 4 5 6 7 8 9
ITEMSNuts Bolts Screws O-rings Washers Blades Switches Nozzle filter Ceramic heaters
UNITS500 500 500 500 600 100 1300 50000 15000
PERCENTAGE GRADES0.25 0.25 0.25 0.25 0.30 0.50 0.65 25 7.5 C C C C C C C A B
10 11 12 13 14 15 16 17 18
Clamps PIC Baffles Teflon Electrical wires Sensors Sprockets Teflon Gears Stretch rods
6000 90000 1000 2000 6000 9000 4000 3000 10000
3 45 0.5 1 3 4.5 2 1.5 5
B A C C C B C C B
IMPACT OF ABC ANALYSISA items merits a tightly controlled inventory system with constant attention by the Purchase and stores management
B items merit a formulized inventory system with periodic attention by the purchases and the stores management
C items used a simpler system designed to cause the least trouble for the purchase and the stores department, perhaps the cost of a little extra inventory cost
CONCLUSIONIt helps the material manager to exercise selective control and focuses attention only on few items when he is confronted with lakhs of store items. It helps in reducing the clerical cost. It results in better planning and improved inventory turnover. It is helpful to rationalize the number of orders and reduce the overall inventory. It helps in developing policy guidelines for selective control. By controlling A items, obsolete stocks are automatically pinpointed.