Scribd
Upload
51 views17 pages

OR511 - Lect-2 - ABC Classification System - 1

The document discusses ABC analysis, which classifies inventory into categories A, B, and C based on their annual dollar value usage. Category A items account for 10-20% of total items but 60-70% of dollar value and require tight control. Category B items are less important than A but more than C, accounting for 15-25% of dollar value. Category C items are the least important with 5-10% of dollar value and low control.

Uploaded by

karim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
51 views17 pages

OR511 - Lect-2 - ABC Classification System - 1

The document discusses ABC analysis, which classifies inventory into categories A, B, and C based on their annual dollar value usage. Category A items account for 10-20% of total items but 60-70% of dollar value and require tight control. Category B items are less important than A but more than C, accounting for 15-25% of dollar value. Category C items are the least important with 5-10% of dollar value and low control.

Uploaded by

karim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 17

Dr.

Basma Ezzat
➢ ABC stands for “Always Better Control”

➢ It helps to control inventory with large number for items

➢ Itrationalizes the number of orders, number of items and


reduces the inventory
➢ Itclassifies the inventory into three categories of A, B
and C

➢ Classifyinginventory according to some measure of


importance and allocating control efforts accordingly.

➢ The ABC analysis is based on Pareto's law


➢ The most important items in the company
➢ Accounts for only 10 to 20% of the total inventory items
➢ Accounts 60 to 70% of the annual dollar value (which is
the highest value)
➢ Have very tight inventory control and accurate records
➢ Managed by the top management
➢ Less important items than category A
➢ More important items than category C
➢ Accounts for only 25 to 30% of the total inventory items
➢ Accounts 15 to 25% of the annual dollar value
➢ Have intermediate inventory control and good records
➢ Managed by middle level management
➢ Least important items in the company
➢ Accounts for only 45 to 50% of the total inventory
items
➢ Accounts 5 to 10% of the annual dollar value
➢ Have low inventory control and minimal records.
➢ Managed by low and middle level management
➢ toclassify vendors in terms of the key figure invoiced
amount
➢ to classify sales organizations with regard to the key
figure incoming order or material or the key figure invoiced
sales
➢ to classify materials according to the key figure usage value
➢ toclassify work centers in terms of the key figure scrap
quantity
➢ to classify object classes with regard to the key
figure breakdown duration
➢ toclassify vendors according to the key figure number of lots
not in order
➢ To make Opportunity assessment
➢ Step 1: Compute the annual usage value for every item in the sample by
multiplying the annual requirements by the cost per unit.
➢ Step 2: Arrange the items in descending order of the usage value calculated
above.
➢ Step 3: Compute percentage of annual usage value for every item by dividing
annual usage value on total annual usage value for all items.
➢ Step 4: Compute the cumulative percentage of annual usage value for every
item.
➢ Step 5: Classifying each item to the corresponding category according to
category percentage.
Answer

item code Average Inventory Value ($/ % annual usage


annual usage value Cumulative % Class
# (Units) unit) value
1289 400 3.75 1500.0 44.5 44.49 A
2347 300 4.00 1200.0 35.6 80.08 A
2349 120 2.50 300.0 8.9 88.98 B
2363 75 1.50 112.5 3.3 92.32 C
2394 60 1.75 105.0 3.1 95.43 C
2395 30 2.00 60.0 1.8 97.21 C
7844 12 2.05 24.6 0.7 97.94 C
6782 20 1.15 23.0 0.7 98.62 C
9111 6 3.00 18.0 0.5 99.16 C
8210 8 1.80 14.4 0.4 99.58 C
8310 7 2.00 14 0.4 100.00 C
3371.5
➢ Other criteria than annual dollar volume may be used
✓ Anticipated engineering changes
✓ Delivery problems
✓ Quality problems
✓ High unit cost
➢ Policies employed may include
✓ More emphasis on supplier development for A items
✓ Tighter physical inventory control for A items
✓ More care in forecasting A items
➢ For the two questions use the following ratios:
➢Class A items represent 70% of the total dollar usage. Class B
items represent about 20% of the total dollar usage.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy