ABC ANALYSIS ABC 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 ANALYSIS

Calculate 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 PATTERN

5 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 ANALYSIS

The 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 ANALYSIS

If 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 STUDYON

ABC ANALYSISOF

BISLERI INDIA LTD.

ABOUT THE INDUSTRY

Corporate 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 BISLERI

Mineral 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 PROCESS

The 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

CONTINUED…

In 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 MATERIAL

The 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 MARKET

The 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 POWER

Parle 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 FACILITY

Bisleri 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 CLIMATE

Bisleri 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 REPORTOF

BISLERI INDIA LTD.

S.NO ITEMS UNITS PERCENTAGE GRADES

1 Nuts 500 0.25 C

2 Bolts 500 0.25 C

3 Screws 500 0.25 C

4 O-rings 500 0.25 C

5 Washers 600 0.30 C

6 Blades 100 0.50 C

7 Switches 1300 0.65 C

8 Nozzle filter 50000 25 A

9 Ceramic heaters

15000 7.5 B

10 Clamps PIC 6000 3 B

11 Baffles 90000 45 A

12 Teflon 1000 0.5 C

13 Electrical wires

2000 1 C

14 Sensors 6000 3 C

15 Sprockets 9000 4.5 B

16 Teflon 4000 2 C

17 Gears 3000 1.5 C

18 Stretch rods 10000 5 B

TOTAL 200000

IMPACT OF ABC ANALYSIS

‘A’ 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

CONCLUSION It 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.

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