ABC analysis

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ABC analysis is a business term used to define an inventory categorization technique often used in materials management.

ABC analysis provides a mechanism for identifying items which will have a significant impact on overall inventory cost [1] whilst also providing a mechanism for identifying different categories of stock that will require different management and controls[2]

When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands[3]. These bands are called ABC codes.

[edit] ABC codes

  1. "A class" inventory will typically contain items that account for 60% of total value
  2. "B class" inventory will have around 20% of total value
  3. "C class" inventory will account for the remaining 20%


ABC Analysis is similar to Pareto in that the "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory.[4]

[edit] References

  1. ^ Manufacturing planning and control systems for supply chain management By Thomas E. Vollmann
  2. ^ http://www.supplychainmechanic.com/?p=46 How to carry out an ABC analysis of inventory
  3. ^ Oracle E-Business Suite Manufacturing & Supply Chain Management By Bastin Gerald, Nigel King, Dan Natchek
  4. ^ Purchasing and Supply Chain Management By Kenneth Lysons, Brian Farrington

[edit] See also

Inventory
Stock_management