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ABC-Analysis 103

ABC Analysis is an inventory categorization technique used in materials management, dividing items into three classes: 'A' for high-value essential goods, 'B' for moderate-value items, and 'C' for low-value goods. It relates to the Pareto Principle, identifying the 20% of goods that contribute to 80% of the value. The method offers advantages such as reduced investment and strict control, but can be ineffective if items are not properly classified.

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8 views14 pages

ABC-Analysis 103

ABC Analysis is an inventory categorization technique used in materials management, dividing items into three classes: 'A' for high-value essential goods, 'B' for moderate-value items, and 'C' for low-value goods. It relates to the Pareto Principle, identifying the 20% of goods that contribute to 80% of the value. The method offers advantages such as reduced investment and strict control, but can be ineffective if items are not properly classified.

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gelligilo3
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ABC ANALYSIS

GELLI G.
COQUIAL
WHAT IS ABC ANALYSIS?
Is a business term used to define an inventory categorization
technique often used in materials management.
It also known as Selective Inventory Control. (which
stand for always better control)
CATEGORIZED INTO 3 CLASSES
‘ A’ ITEMS
 essential good with the highest value
 very crucial
 expensive inventory
 accurate control required
 require close monitoring
‘B’ ITEMS
 Goods with the Slightly higher value
 Moderate value inventory
 Moderate control required
‘C’ ITEMS
 Least valuable goods
 Low Cost Inventory
 Minimum Control Required
HOW ABC ANALYSIS RELATES TO THE PARETO
PRINCIPLE
 The Pareto Principle say the most results come from only
20% of efforts or causes in any system and Based on
pareto’s 80/20 rule, ABC analysis identifies the 20% of
goods that deliver about 80% of the value. Therefore, most
businesses have a small number of ‘A’ items, a slightly
larger group of ‘B’ items and a big group of ‘C’ items, a
category that defines the majority of items.
EXAMPLE OF ABC ANAYSIS

SAMSUNG GALAXY SMARTPHONES


TYPE IMPORTANC PERCENTAG ANNUAL CONTROL PERCENTAG
E E OF TOTAL CONSUMPTI E OF TOTAL
INVENTORY ON VALUE INVENTORY
CLASS A HIGHER 15%-20% 60%-70% TIGHT HIGH
VALUE

CLASS B MEDIUM 30% 30%-35% MEDIUM GOOD


VALUE

CLASS C LOW VALUE 50% 10%-15% BASIC MINIMAL


FORMULA HOW TO COMPUTE ABC
ANALYSIS

(ANNUAL NUMBER OF ITEMS SOLD X COST PER UNIT= ANNUAL USAGE


VALUE PER PRODUCT)
SAMPLE PROBLEM
ITEM ANNUAL NUMBER COST PER UNIT ANNUAL
OF UNITS SOLD CONSUMPTION
VALUE

MACHINE SCREW 21,000 0.50 10,500


CABLE CLAMP 10,000 0.50 5,000
EYEBOLT 16,000 1.50 24,000
TAPE MEASURE 50,000 3.50 175,000
NAIL 15,000 0.10 1,500
CARABINER 40,000 2.00 80,000
WING NUT 80,000 0.03 2,400
FLAT WASHER 120,000 0.05 6,000
S HOOK 15,000 0.25 3,750
FERRULE 10,000 1.50 15,000
SAMPLE PROBLEM
TABLE 1
ITEM ANNUAL NUMBER COST PER UNIT ANNUAL
OF UNITS SOLD CONSUMPTION
VALUE
TAPE MEASURE 50,000 3.50 175,000
CARABINER 40,000 2 80,000
EYEBOLT 16,000 1.50 24,000
FERRULE 10,000 1.50 15,000
MACHINE SCREW 21,000 0.50 10,500
FLAT WASHER 120,000 0.05 6,000
CABLE CLAMP 10,000 0.50 5,000
S HOOK 15,000 0.25 3,750
WING NUT 80,000 0.03 2,400
NAIL 15,000 0.10 1,500
SAMPLE PROBLEM
TABLE 2
ITEM ANNUAL NUMBER COST PER UNIT ANNUAL
OF UNITS SOLD CONSUMPTION
VALUE
TAPE MEASURE 50,000 3.50 175,000
CARABINER 40,000 2 80,000
EYEBOLT 16,000 1.50 24,000
FERRULE 10,000 1.50 15,000
MACHINE SCREW 21,000 0.50 10,500
FLAT WASHER 120,000 0.05 6,000
CABLE CLAMP 10,000 0.50 5,000
S HOOK 15,000 0.25 3,750
WING NUT 80,000 0.03 2,400
NAIL 15,000 0.10 1,500
TOTAL 377,000 323,150
SAMPLE PROBLEM
TABLE 3
ITEM ANNUAL COST PER ANNUAL % OF % OF
NUMBER OF UNIT CONSUMPTI ANNUAL ANNUAL
UNITS ON VALUE UNITS CONSUMPTI
SOLD SOLD ON VALUE
TAPE 50,000 3.50 175,000 13.3% 54.2%
MEASURE
CARABINER 40,000 2 80,000 10.61% 24.8%
EYEBOLT 16,000 1.50 24,000 4.2% 7.4%
FERRULE 10,000 1.50 15,000 2.7% 4.6%
MACHINE 21,000 0.50 10,500 5.6% 3.2%
SCREW
FLAT 120,000 0.05 6,000 31.8% 1.9%
WASHER
CABLE 10,000 0.50 5,000 2.7% 1.5%
CLAMP
S HOOK 15,000 0.25 3,750 4% 1.2%
WING NUT 80,000 0.03 2,400 21.2% 0.7%
SAMPLE PROBLEM
TABLE 4
ITEM ANNUAL COST PER ANNUAL % OF % OF
NUMBER OF UNIT CONSUMPTI ANNUAL ANNUAL
UNITS SOLD ON VALUE UNITS SOLD CONSUMPTI
ON VALUE
TAPE 50,000 3.50 175,000 13.3% 54.2%
MEASURE
CARABINER 40,000 2 80,000 10.61% 24.8%

EYEBOLT 16,000 1.50 24,000 4.2% 7.4%


FERRULE 10,000 1.50 15,000 2.7% 4.6%
MACHINE 21,000 0.50 10,500 5.6% 3.2%
SCREW
FLAT 120,000 0.05 6,000 31.8% 1.9%
WASHER
CABLE 10,000 0.50 5,000 2.7% 1.5%
CLAMP
S HOOK 15,000 0.25 3,750 4% 1.2%
WING NUT 80,000 0.03 2,400 21.2% 0.7%
ADVANTAGES OF ABC ANALYSIS

1. Reduction in Investment
2. Strict Control
3. Minimum Storage Cost
4. Saving in time
5. Economy
DISADVANTAGES OF ABC ANALYSIS

1. ABC will not be effective of the material are not classified into
groups properly.
2. it is not suitable for the organization where the costs of materials
do not very significantly
3. the classification of the materials into different groups may lead
to extra cost. hence, it may not be suitable for small organization.
CONCLUSION

 ABC Analysis is a useful tool in inventory management that


can help businesses better manage their inventory levels and
make better decisions about which items to stock and how to
manage.
 It also helps businesses prioritize their inventory items for
ordering, reordering, and replenishment.

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