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This web site is designed to help navigate
you through the mountain loads of information about inventory
management.
In the case of a manufacturing company of reasonable size the number of items of inventory runs into hundreds, if not more. From the point of view of monitoring information for control it becomes extremely difficult to consider each one of these items. The ABC analysis comes in quite handy and enables the management to concentrate attention and keep a close watch on a relatively less number of items which account for a high percentage of the value of annual usage of all items of inventory. A firm using the ABC system segregates its inventory into three groups - A, B and C. The items are those in which it has the largest dollar investment. The A group consists of the 10 percent of the inventory items that account for 70 percent of the firm's dollar investment. These are the most costly or the slowest turning items of inventory. The B group consists of the items accounting for the next largest investment. The B group consists of the 20 percent of the items accounting for about 20 percent of the firm's dollar investment. The C group typically consists of a large number of items accounting for a small rupee investment. C group consists of approximately 70 percent of all the items of inventory but accounts for only about 10 percent of the firm's dollar investment. Such items as screws, nails, and washers would be in this group. Classifying the inventory into A, B, and C items allows the firm to determine the level and types of inventory control procedures needed. Control of the A items should be most intensive due to the high rupee investments involved, while the B and C items would be subject to correspondingly less sophisticated control procedures. The general procedure for categorization of items into `A', `B' and `C' The required plan of ABC selective
control The valuation of work-in-process and
finished goods inventory
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