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ABSTRACT
ABC analysis is that technique of material control in which we divide our material into three categories and investment is done according to the value and nature of that category's materials. materials, we include 10% of total material, but its cost will be high, so its investment requirement will also be very high and it may be 70% of total investment in inventory. The ABC method requires more resources to maintain than traditional costing systems. When cycle counts are performed, class A inventory must be routinely analyzed to determine if the inventory still consists of high-priority items.
INTRODCTION
A large service organization and a consumer goods manufacturer participated in the study. The managers in both organizations used cost and non cost criteria for developing the ABC categories for inventory management. The study shows that managers can develop no cost criteria and classify the inventory items in ways that combine the criteria types. Specific policies were defined for managing the items in the industrial firm. Once the benefits of the methodology were demonstrated, a year-long program for implementing the system was developed. The project is estimated to cost less than 10 to 15% of the available storeroom clerk man hours and provide substantially greater benefits.
There are no fixed thresholds for each class, different proportion can be applied based on objective and criteria. ABC Analysis is similar to the Pareto principle in that the 'A' items will typically account for a large proportion of the overall value but a small percentage of number of items. Example of ABC class are
* 'A' items - 20% of the items accounts for 70% of the annual consumption value of the items.
* 'B' items - 30% of the items accounts for 25% of the annual consumption value of the items.
* 'C' items - 50% of the items accounts for 5% of the annual consumption value of the items.
The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis:
* A ITEMS: very tight control and accurate records
* B ITEMS: less tightly controlled and good records
* C ITEMS: simplest controls possible and...