abc analysis inventory control

8/13/2019 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$



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!



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$

Page $



ABC ANALYSIS

1. ABC analysis

.&e ABC analysis i' a bu'ine'' term u'ed to de)ine an in/entory +ate*oriation

te+&ni;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

Page 3



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'!



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'!

Page 4



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

Page D



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'!

Page #



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



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



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



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!

Page 1$

abc analysis inventory control

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