abc analysis inventory control
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ABC ANALYSISFor the Inventory of Victory Devices Pvt. Ltd.,
Delhi
Submitted By: Ankit Kapoor, Roll No- 221025, FM 22A!11"1#"201$
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ABC ANALYSIS
ACKNOWLEDGEMENT
% take t&i' opportunity to e(pre'' my pro)ound *ratitude and deep re*ard' to my
)a+ulty Prof. ALOK KUMAR o) FR '+&ool o) mana*ement )or &i' e(emplary
tea+&in*', *uidan+e and +on'tant en+oura*ement t&rou*&out t&e +our'e! .&e
ble''in*, &elp and *uidan+e *i/en by &im time to time '&all +arry me a lon* ay in
t&e ourney o) li)e on &i+& % am about to embark!
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ABC ANALYSIS
Contentsontent'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $
1! AB analy'i'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3
1!1 AB analy'i' ate*orie'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!5
2! Step' )or t&e +la''i)i+ation o) item':!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4
$! i+tory 6e/i+e' 7/t! 8td! - ompany 7ro)ile!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!#
3! AB Analy'i' )or i+tory 6e/i+e' 7/t! 8td!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9
5! on+lu'ion!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1$
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ABC ANALYSIS
1. ABC analysis
.&e ABC analysis i' a bu'ine'' term u'ed to de)ine an in/entory +ate*oriation
te+∋ue o)ten u'ed in material' mana*ement! %t i' al'o knon a' Selective
Inventory Control . 7oli+ie' ba'ed on AB analy'i':
• A ITEM! /ery ti*&t +ontrol and a++urate re+ord'!
•
B ITEM! le'' ti*&tly +ontrolled and *ood re+ord'!
• C ITEM! 'imple't +ontrol' po''ible and minimal re+ord'!
.&e AB analy'i' pro/ide' a me+&ani'm )or identi)yin* item' t&at ill &a/e a
'i*ni)i+ant impa+t on o/erall in/entory +o't, &ile al'o pro/idin* a me+&ani'm )or
identi)yin* di))erent +ate*orie' o) 'to+k t&at ill re;uire di))erent mana*ement and
+ontrol'!
.&e AB analy'i' 'u**e't' t&at in/entorie' o) an or*aniation are not o) e;ual
/alue! .&u', t&e in/entory i' *rouped into t&ree +ate*orie' <A" B" an# C= in order o)
t&eir e'timated importan+e!
>A$ item' are /ery important )or an or*aniation! Be+au'e o) t&e &i*& /alue o) t&e'e
?A@ item', )re;uent /alue analy'i' i' re;uired! %n addition to t&at, an or*aniation
need' to +&oo'e an appropriate order pattern <e!*! ?u't- in- time@= to a/oid e(+e''
+apa+ity!
>B$ item' are important, but o) +our'e le'' important t&an ?A@ item' and more
important t&an ?@ item'! .&ere)ore ?B@ item' are inter*roup item'!
>C$ item' are mar*inally important!
.&i' met&od aim' to dra mana*er'@ attention on t&e +riti+al )e <A-item'= not on
t&e tri/ial many <-item'=!
T%e Pareto Prin&i'le
(IL)REDO PARETO *1+,+-1/0
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ABC ANALYSIS
• 20 o) population on' #0 o) nation@' ealt&!
• 20 o) employee' +au'e #0 o) problem'!
• 20 o) item' a++ount' )or #0 o) )irm' e(penditure!
1.1 ABC analysis Cate2ories.&e AB approa+& 'tate' t&at a +ompany '&ould rate item' )rom A to , ba'in* it'
ratin*' on t&e )olloin* rule':
• A-items are *ood' &i+& annual +on'umption /alue i' t&e &i*&e'tC t&e top
D0-#0 o) t&e annual +on'umption /alue o) t&e +ompany typi+ally a++ount'
)or only 10-20 o) total in/entory item'!
• B-items are t&e inter+la'' item', it& a medium +on'umption /alueC t&o'e 15-
25 o) annual +on'umption /alue typi+ally a++ount' )or $0 o) total in/entory
item'!
• C-items are, on t&e +ontrary, item' it& t&e loe't +on'umption /alueC t&e
loer 5 o) t&e annual +on'umption /alue typi+ally a++ount' )or 50 o) total
in/entory item'!
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ABC ANALYSIS
.&e annual +on'umption /alue i' +al+ulated it& t&e )ormula:
(Annual demand) x (item cost per unit)
.&rou*& t&i' +ate*oriation, t&e 'upply mana*er +an identi)y in/entory &ot 'pot',
and 'eparate t&em )rom t&e re't o) t&e item', e'pe+ially t&o'e t&at are numerou' but
not t&at pro)itable!
/. te's for t%e &lassifi&ation of ite3s!
1! Find out t&e unit +o't and t&e u'a*e o) ea+& material o/er a *i/en period!
2! Multiply t&e unit +o't by t&e e'timated annual u'a*e to obtain t&e net /alue!
$! 8i't out all t&e item' and arran*e t&em in t&e de'+endin* /alue <Annual
alue=!
3! A++umulate /alue and add up number o) item' and +al+ulate per+enta*e on
total in/entory in /alue and in number!
5! 6ra a +ur/e o) per+enta*e item' and per+enta*e /alue!
4! Mark o)) )rom t&e +ur/e t&e rational limit' o) A, B and +ate*orie'!
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ABC ANALYSIS
Cate2ory Per&enta2e of ite3s Per&enta2e 4al5e
of ann5al 5sa2e
Class A
ite3s
About 20 About #0 lo'e day to day
+ontrol
Class B
ite3s
About $0 About 15 Re*ular re/ie
Class C
ite3s
About 50 About 5 %n)re;uent re/ie
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ABC ANALYSIS
0. (i&tory De4i&es P4t. Lt#. - Co3'any Profile
'tabli'&ed in t&e year 19#5, t&ey are one o) t&e ell-e'tabli'&ed di'tributor' and'to+ki't' o) an e(ten'i/e ran*e o) 6iode', le+troni+ apa+itor', inte*rated ir+uit',
le+trolyti+ apa+itor', Multi 8ayer erami+ apa+itor', erami+ apa+itor', Ei*&
olta*e erami+ apa+itor', Mi+ro 7&one', R. So+ket' and ot&er le+troni+
omponent'! .&ere entire ran*e i' knon )or it' pre+i'ion appli+ation 'pe+i)i+
de'i*n, e))i+ien+y, per)orman+e and ener*y 'a/in* )eature'! By o))erin* a ;uality
ran*e o) produ+t', t&ey &a/e been 'u++e'')ul in t&e metin* t&e /aried re;uirement'
o) 7oer Se+tor, %. Se+tor' a+ro'' t&e nation!
.&ey pro+ure t&eir entire ran*e )rom renoned or*aniation' ba'ed at apan,
.aian, Eon* Kon* and &ina! .&ey &a/e all re;ui'ite and modern )a+ilitie', &i+&
enable t&em to manu)a+ture t&eir ran*e in 'tri+t +omplian+e it& t&e international
;uality 'tandard'!
Ba'ed at Ne 6el&i, <%ndia=, be'ide' t&eir ide di'tribution netork, t&ey al'o &a/etie-up' it& /ariou' lo*i'ti+ +ompanie' t&at &elp t&em to deli/er t&e ordered
+on'i*nment' it&in t&e 'tipulated time )rame! .&eir poli+y i' to pro/ide optimum
;uality produ+t' at indu'try leadin* pri+e', t&ey &a/e been able to *arner reputed
+lientele a+ro'' t&e nation!
.&ey ork a' a uni)ied team and endea/our to e(pand t&eir e(i'tin* produ+t ran*e
to 'et up o))i+e' in all metro +itie'!
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ABC ANALYSIS
,. ABC Analysis for (i&tory De4i&es P4t. Lt#.
Belo mentioned table '&o' t&e item' <identi)ied by item number= t&eir annualdemand', and unit +o't'!
Ite3 n536er 1717
7
17/7
7
1707
7
17,7
7
1787
7
1797
7
17:7
7
17+7
7
177
7
1177
7
Unit &ost 5 11 1$ 9 # 14 2$ 4 11 1D
Ann5al
#e3an#
3500
0
3000 300 2000 5000 2000 2500
0
500 4500 2500
Ge no '&o t&at &o t&e +ompany '&ould +la''i)y t&e'e item' into *roup' A, B,
and !
Cate2ory Per&enta2e of ite3s Per&enta2e 4al5e
of ann5al 5sa2e
Class A
ite3s
About 20 About #0 lo'e day to day
+ontrol
Class B
ite3s
About $0 About 15 Re*ular re/ie
Class C
ite3s
About 50 About 5 %n)re;uent re/ie
te' 1 ! We &al&5late t%e total s'en#in2 'er year.
.otal +o't per year: Hnit +o't I total +o't per year
Ite3 n536er Unit &ost Ann5al#e3an#
TotalCost 'er
year
17177 5 35,000 225,000
17/77 11 3,000 33,000
17077 1$ 300 5,20017,77 9 2000 1#,000
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ABC ANALYSIS
17877 # 5,000 30,000
17977 14 2,000 $2,000
17:77 2$ 25,000 5D5,000
17+77 4 500 $,000
1777 11 4,500 D1,50011777 1D 2,500 32,500
1"789"/77
te' /! We &al&5late t%e 5sa2e 'er&enta2e of ea&% ite3 in t%e total 5sa2e.
H'a*e a' a o) total u'a*e J u'a*e o) item"total u'a*e
Ite3 n536er Unit &ost Ann5al#e3an#
TotalCost 'er
year
Usa2e as a ;of total 5sa2e
17177 5 35,000 225,000 21!$
17/77 11 3,000 33,000 3!2
17077 1$ 300 5,200 0!5
17,77 9 2000 1#,000 1!D
17877 # 5,000 30,000 $!#
17977 14 2,000 $2,000 $!0
17:77 2$ 25,000 5D5,000 53!3
17+77 4 500 $,000 0!$1777 11 4,500 D1,500 4!#
11777 1D 2,500 32,500 3!0
1"789"/77 177;
te' 0! We sort t%e ite3s as 'er t%eir 5sa2e 'er&enta2e
Ite3
n536er
C535lati4
e ; ofite3s
Unit
&ost
Ann5al
#e3an#
Total
Cost 'eryear
Usa2e
as a ;of total5sa2e
C535lati4
e ; oftotal
Cate2or
y
17:77 10 2$ 25,000 5,D5,000 53!3 53!3 A
17177 20 5 35,000 2,25,000 21!$ D5!D A
1777 $0 11 4,500 D1,500 4!# #2!5 B
17877 30 # 5,000 30,000 $!# #4!$ B
17/77 50 11 3,000 33,000 3!2 90!5 B
17977 40 14 2,000 $2,000 $!0 9$!5 B
11777 D0 1D 2,500 32,500 3!0 9D!5
17,77 #0 9 2000 1#,000 1!D 99!2 17077 90 1$ 300 5,200 0!5 99!D
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ABC ANALYSIS
17+77 100 4 500 $,000 0!$ 100!0
Total5sa2e
17"89"/77
177;
te' , ! Res5lts of Cal&5lation
Cate2ory Ite3s Per&enta2e ofite3s
Per&enta2e 5sa2e
A&tion
Class A 10D00, 10100 20 D5!D3 lo'e ontrol
Class B 10900, 10500, 10200,10400
30 1D!# Re*ular Re/ie
Class C 11000, 10300, 10$00,10#00
30 4!5 %n)re;uentRe/ie
A##itional R5les for ABC Analysis
Cate2ory Per&enta2e ofite3s
Per&enta2e5sa2e*;
Class Aite3s
5-25 30-#0
Class Bite3s
20-30 15-30
Class Cite3s
30-D5 5-20
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ABC ANALYSIS
+andidate' to in/e'ti*ate t&e potential )or alternati/e 'to+kin* arran*ement'
t&at ould redu+e in/e'tment liability and a''o+iated +arryin* +o't'!
• Turnover ratios and associated inventory goals: AL item' ill &a/e
*reater u'a*e t&an BL or L item', and a' a re'ult '&ould &a/e *reaterturno/er ratio'C &en e'tabli'&in* in/e'tment and turno/er metri+', in/entory
data +an be 'e*re*ated by AB +la''i)i+ation, it& di))erent tar*et' )or ea+&
+ate*ory!
8. Con&l5sion
• .&e boundary beteen +la'' A, +la'' B and +la'' item' i' +learly de)ined!
• .&e purpo'e o) t&i' +la''i)i+ation i' to en'ure t&at pur+&a'in* 'ta)) u'e
re'our+e' to ma(imum e))i+ien+y by +on+entratin* on t&o'e item' t&at &a/e
t&e *reate't potential 'a/in*'!
•
Sele+ti/e +ontrol ill be more e))e+ti/e t&an an approa+& t&at treat' all item'identi+ally!
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