ABC analysis is a method used to categorize inventory items based on their importance to the business, usually in terms of value and usage frequency. This approach helps prioritize inventory management efforts and resources effectively. Here’s an explanation:
Categories in ABC Analysis :
A Items (High Value, Low Quantity) :
* These items contribute to the highest percentage of total inventory value, typically around 70-80%.
* They are critical for business operations and often have a high cost per unit but are ordered or used in smaller quantities.
* Examples: High-end machinery parts, premium raw materials.
Management Focus :
* Tight inventory control.
* Frequent monitoring.
* Accurate demand forecasting.
B Items (Moderate Value, Moderate Quantity) :
* These items fall in the middle, typically contributing around 15-25% of the total inventory value.
* They are less critical than A items but still important for operations.
* Examples: Standard components, mid-range goods.
Management Focus :
* Periodic review and monitoring.
* Balanced control measures.
C Items (Low Value, High Quantity) :
* These items contribute the least to inventory value, typically around 5-10%, but are often used in large quantities.
* They are less expensive and not as critical individually.
* Examples: Office supplies, low-cost fasteners.
Management Focus :
* Simplified controls.
* Bulk ordering or JIT (Just-In-Time) strategies.
