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- Jaimeen Baxi 3258 - Parthasarathy Penna 3272

ABC ANALYSIS
(ABC = Always Better Control) This is based on cost criteria. It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory. About 10 % of materials consume 70 % of resources About 20 % of materials consume 20 % of resources

About 70 % of materials consume 10 % of resources

A ITEMS
Small in number, but consume large amount of resources Must have:
Tight control Rigid estimate of requirements Strict & closer watch Low safety stocks Managed by top management

B ITEMS
Intermediate

Must have:
Moderate control Purchase based on rigid requirements Reasonably strict watch & control Moderate safety stocks Managed by middle level management

C ITEMS
Larger in number, but consume lesser amount of resources Must have:
Ordinary control measures Purchase based on usage estimates High safety stocks ABC analysis does not stress on items those are less costly but may be vital

ABC
A N A L Y S I S

ITEM %
10 %

ITEM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

ANNUAL COST [Rs.] 90000 50000 20000 7500 7500 5000 4500 4000 2750 1750 1500 1500 500 500 500 500 500 500 500 500

CUMMULATIVE COST [Rs.] 90000 140000 160000 167500 175000 180000 184500 188500 191250 193000 194500 196000 196500 197000 197500 198000 198500 199000 199500 200000

COST %

70 %

20 %

20 %

70 %

10 %

WORK SHEET

When and why to use it?

The ABC analysis can be also be useful in several steps of the Sourcing Value Chain: ! Demand Identification, to gather the annual spend of a site ! Demand Aggregation, to gather the annual spend of several sites ! Opportunity Assessment, to identify leveraging opportunities The ABC tool is used to identify the vital few from the trivial many, according to a defined set of criteria Different decisions may be taken from the result of the ABC analysis

6-steps used to perform an ABC analysis:

1st step Identify the objective and the analysis criterion 2nd step Collect data about the analyzed population 3rd step Sort out the list by decreasing impact 4th step Calculate the accumulated impact and the percentage 5th step Identify the classes 6th step Analyze the classes and take appropriate decisions

 Required Resources An ABC analysis requires directionally correct data. It relies on the availability of systems allowing measurement of the criteria chosen for the analysis. Tool Limitations / Common Pitfalls Most of the time only past annual spend is available to perform an ABC analysis.

CONCLUSION
Thus, ABC Analysis is a vital method of Inventory Control.