ABC ANALYSIS

For the Inventory of Victory Devices Pvt. Ltd., Delhi

Submitted By: Ankit Kapoor, Roll No- 221025, FM 11"1#"201$ 22A!

ABC ANALYSIS

ACKNOWLEDGEMENT
% take t&i' opportunity to e(pre'' my pro)ound *ratitude and deep re*ard' to my )a+ulty Prof. ALOK KUMAR o) F,R- '+&ool o) mana*ement )or &i' e(emplary tea+&in*', *uidan+e and +on'tant en+oura*ement t&rou*&out t&e +our'e! .&e ble''in*, &elp and *uidan+e *i/en by &im time to time '&all +arry me a lon* 0ay in t&e 1ourney o) li)e on 0&i+& % am about to embark!

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Contents
2ontent'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! $ 1! AB2 analy'i'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 1!1 AB2 analy'i' 2ate*orie'!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!5 2! Step' )or t&e +la''i)i+ation o) item':!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4 $! 5i+tory 6e/i+e' 7/t! 8td! - 2ompany 7ro)ile!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!# 3! AB2 Analy'i' )or 5i+tory 6e/i+e' 7/t! 8td!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 5! 2on+lu'ion!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1$

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ABC ANALYSIS

1. ABC analysis
.&e ABC analysis i' a bu'ine'' term u'ed to de)ine an in/entory +ate*ori:ation te+∋ue o)ten u'ed in material' mana*ement! %t i' al'o kno0n a' Selective Inventory Control. 7oli+ie' ba'ed on AB2 analy'i':

A ITEM ! /ery ti*&t +ontrol and a++urate re+ord'! B ITEM ! le'' ti*&tly +ontrolled and *ood re+ord'! C ITEM ! 'imple't +ontrol' po''ible and minimal re+ord'!

.&e AB2 analy'i' pro/ide' a me+&ani'm )or identi)yin* item' t&at 0ill &a/e a 'i*ni)i+ant impa+t on o/erall in/entory +o't, 0&ile al'o pro/idin* a me+&ani'm )or identi)yin* di))erent +ate*orie' o) 'to+k t&at 0ill re;uire di))erent mana*ement and +ontrol'! .&e AB2 analy'i' 'u**e't' t&at in/entorie' o) an or*ani:ation are not o) e;ual /alue! .&u', t&e in/entory i' *rouped into t&ree +ate*orie' < A" B" an# C= in order o) t&eir e'timated importan+e! >A$ item' are /ery important )or an or*ani:ation! Be+au'e o) t&e &i*& /alue o) t&e'e ?A@ item', )re;uent /alue analy'i' i' re;uired! %n addition to t&at, an or*ani:ation need' to +&oo'e an appropriate order pattern <e!*! ?Au't- in- time@= to a/oid e(+e'' +apa+ity! >B$ item' are important, but o) +our'e le'' important t&an ?A@ item' and more important t&an ?2@ item'! .&ere)ore ?B@ item' are inter*roup item'! >C$ item' are mar*inally important! .&i' met&od aim' to dra0 mana*er'@ attention on t&e +riti+al )e0 <A-item'= not on t&e tri/ial many <2-item'=! T%e Pareto Prin&i'le (IL)REDO PARETO *1+,+-1./01
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ABC ANALYSIS
20B o) population o0n' #0B o) nation@' 0ealt&! 20B o) employee' +au'e #0B o) problem'! 20B o) item' a++ount' )or #0B o) )irm' e(penditure!

1.1 ABC analysis Cate2ories

.&e AB2 approa+& 'tate' t&at a +ompany '&ould rate item' )rom A to 2, ba'in* it' ratin*' on t&e )ollo0in* rule': A-items are *ood' 0&i+& annual +on'umption /alue i' t&e &i*&e'tC t&e top D0-#0B o) t&e annual +on'umption /alue o) t&e +ompany typi+ally a++ount' )or only 10-20B o) total in/entory item'! B-items are t&e inter+la'' item', 0it& a medium +on'umption /alueC t&o'e 1525B o) annual +on'umption /alue typi+ally a++ount' )or $0B o) total in/entory item'! C-items are, on t&e +ontrary, item' 0it& t&e lo0e't +on'umption /alueC t&e lo0er 5B o) t&e annual +on'umption /alue typi+ally a++ount' )or 50B o) total in/entory item'!

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ABC ANALYSIS

.&e annual +on'umption /alue i' +al+ulated 0it& t&e )ormula: (Annual demand) x (item cost per unit) .&rou*& t&i' +ate*ori:ation, t&e 'upply mana*er +an identi)y in/entory &ot 'pot', and 'eparate t&em )rom t&e re't o) t&e item', e'pe+ially t&o'e t&at are numerou' but not t&at pro)itable!

/. te's for t%e &lassifi&ation of ite3s!

1! Find out t&e unit +o't and t&e u'a*e o) ea+& material o/er a *i/en period! 2! Multiply t&e unit +o't by t&e e'timated annual u'a*e to obtain t&e net /alue! $! 8i't out all t&e item' and arran*e t&em in t&e de'+endin* /alue <Annual 5alue=! 3! A++umulate /alue and add up number o) item' and +al+ulate per+enta*e on total in/entory in /alue and in number! 5! 6ra0 a +ur/e o) per+enta*e item' and per+enta*e /alue! 4! Mark o)) )rom t&e +ur/e t&e rational limit' o) A, B and 2 +ate*orie'!

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ABC ANALYSIS
Cate2ory Class ite3s Class ite3s Class ite3s Per&enta2e of ite3s A About 20B B About $0B C About 50B Per&enta2e 4al5e of ann5al 5sa2e About #0B About 15B About 5B 2lo'e day to day +ontrol Re*ular re/ie0 %n)re;uent re/ie0

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ABC ANALYSIS

0. (i&tory De4i&es P4t. Lt#. - Co3'any Profile

-'tabli'&ed in t&e year 19#5, t&ey are one o) t&e 0ell-e'tabli'&ed di'tributor' and 'to+ki't' o) an e(ten'i/e ran*e o) 6iode', -le+troni+ 2apa+itor', inte*rated 2ir+uit', -le+trolyti+ 2apa+itor', Multi 8ayer 2erami+ 2apa+itor', 2erami+ 2apa+itor', Ei*& 5olta*e 2erami+ 2apa+itor', Mi+ro 7&one', 2R. So+ket' and ot&er -le+troni+ 2omponent'! .&ere entire ran*e i' kno0n )or it' pre+i'ion F appli+ation 'pe+i)i+ de'i*n, e))i+ien+y, per)orman+e and ener*y 'a/in* )eature'! By o))erin* a ;uality ran*e o) produ+t', t&ey &a/e been 'u++e'')ul in t&e metin* t&e /aried re;uirement' o) 7o0er Se+tor, %. Se+tor' a+ro'' t&e nation! .&ey pro+ure t&eir entire ran*e )rom reno0ned or*ani:ation' ba'ed at Aapan, .ai0an, Eon* Kon* and 2&ina! .&ey &a/e all re;ui'ite and modern )a+ilitie', 0&i+& enable t&em to manu)a+ture t&eir ran*e in 'tri+t +omplian+e 0it& t&e international ;uality 'tandard'!

Ba'ed at Ne0 6el&i, <%ndia=, be'ide' t&eir 0ide di'tribution net0ork, t&ey al'o &a/e tie-up' 0it& /ariou' lo*i'ti+ +ompanie' t&at &elp t&em to deli/er t&e ordered +on'i*nment' 0it&in t&e 'tipulated time )rame! .&eir poli+y i' to pro/ide optimum ;uality produ+t' at indu'try leadin* pri+e', t&ey &a/e been able to *arner reputed +lientele a+ro'' t&e nation!

.&ey 0ork a' a uni)ied team and endea/our to e(pand t&eir e(i'tin* produ+t ran*e F to 'et up o))i+e' in all metro +itie'!

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ABC ANALYSIS

,. ABC Analysis for (i&tory De4i&es P4t. Lt#.

Belo0 mentioned table '&o0' t&e item' <identi)ied by item number= t&eir annual demand', and unit +o't'!

Ite3 n536er Unit &ost Ann5al #e3an#

1717 7 5 3500 0

17/7 7 11 3000

1707 7 1$ 300

17,7 7 9 2000

1787 7 # 5000

1797 7 14 2000

17:7 7 2$ 2500 0

17+7 7 4 500

17.7 7 11 4500

1177 7 1D 2500

Ge no0 '&o0 t&at &o0 t&e +ompany '&ould +la''i)y t&e'e item' into *roup' A, B, and 2!

Cate2ory Class ite3s Class ite3s Class ite3s

Per&enta2e of ite3s A About 20B B About $0B C About 50B

Per&enta2e 4al5e of ann5al 5sa2e About #0B About 15B About 5B 2lo'e day to day +ontrol Re*ular re/ie0 %n)re;uent re/ie0

te' 1 ! We &al&5late t%e total s'en#in2 'er year. .otal +o't per year: Hnit +o't I total +o't per year

Ite3 n536er 17177 17/77 17077 17,77

Unit &ost 5 11 1$ 9

Ann5al #e3an# 35,000 3,000 300 2000

Total Cost 'er year 225,000 33,000 5,200 1#,000

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ABC ANALYSIS
17877 17977 17:77 17+77 17.77 11777 # 14 2$ 4 11 1D 5,000 2,000 25,000 500 4,500 2,500 30,000 $2,000 5D5,000 $,000 D1,500 32,500 1"789"/77

te' /! We &al&5late t%e 5sa2e 'er&enta2e of ea&% ite3 in t%e total 5sa2e. H'a*e a' a B o) total u'a*e J u'a*e o) item"total u'a*e Ite3 n536er 17177 17/77 17077 17,77 17877 17977 17:77 17+77 17.77 11777 Unit &ost 5 11 1$ 9 # 14 2$ 4 11 1D Ann5al #e3an# 35,000 3,000 300 2000 5,000 2,000 25,000 500 4,500 2,500 Total Cost 'er year 225,000 33,000 5,200 1#,000 30,000 $2,000 5D5,000 $,000 D1,500 32,500 1"789"/77 Usa2e as a ; of total 5sa2e 21!$B 3!2B 0!5B 1!DB $!#B $!0B 53!3B 0!$B 4!#B 3!0B 177;

te' 0! We sort t%e ite3s as 'er t%eir 5sa2e 'er&enta2e Ite3 n536e r 17:77 17177 17.77 17877 17/77 17977 11777 17,77 17077 C535lati4 e ; of ite3s 10B 20B $0B 30B 50B 40B D0B #0B 90B Unit &ost 2$ 5 11 # 11 14 1D 9 1$ Ann5al #e3an# 25,000 35,000 4,500 5,000 3,000 2,000 2,500 2000 300 Total Cost 'er year 5,D5,000 2,25,000 D1,500 30,000 33,000 $2,000 32,500 1#,000 5,200 Usa2e as a ; of total 5sa2e 53!3B 21!$B 4!#B $!#B 3!2B $!0B 3!0B 1!DB 0!5B C535lati4 e ; of total 53!3B D5!DB #2!5B #4!$B 90!5B 9$!5B 9D!5B 99!2B 99!DB Cate2or y
A A B B B B 2 2 2 Page 10

ABC ANALYSIS
17+77 Total 5sa2e 100B 4 500 $,000 17"89"/7 7 0!$B 177; 100!0B
2

te' , ! Res5lts of Cal&5lation

Cate2ory Class A Class B Class C Ite3s 10D00, 10100 10900, 10500, 10200, 10400 11000, 10300, 10$00, 10#00 Per&enta2e of ite3s 20B 30B 30B Per&enta2 e 5sa2e D5!D3B 1D!#B 4!5B A&tion 2lo'e 2ontrol Re*ular Re/ie0 %n)re;uent Re/ie0

A##itional R5les for ABC Analysis

Cate2ory Class A ite3s Class B ite3s Class C ite3s

Per&enta2e of ite3s 5-25B 20-30B 30-D5B

Per&enta2e 5sa2e*;1 30-#0B 15-30B 5-20B

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ABC ANALYSIS
In4entory Mana2e3ent Poli&ies Ea&% ite3 s%o5l# re&ei4e a treat3ent &orres'on#in2 to its &lass! A-items '&ould &a/e ti*&t in/entory +ontrol, more 'e+ured 'tora*e area' and better 'ale' )ore+a't'C reorderin* '&ould be )re;uent, 0it& 0eekly or e/en daily reorderC a/oidin* 'to+k-out' on A-item' i' a priority! B-items bene)it )rom an intermediate 'tatu' bet0een A and 2C an important a'pe+t o) +la'' B i' t&e monitorin* o) potential e/olution to0ard +la'' A or, in t&e +ontrary, to0ard t&e +la'' 2! Reorderin* C-items i' made le'' )re;uentlyC a typi+ally in/entory poli+y )or 2item' +on'i't o) &a/in* only 1 unit on &and, and o) reorderin* only 0&en an a+tual pur+&a'e i' madeC t&i' approa+& lead' to 'to+k-out 'ituation a)ter ea+& pur+&a'e 0&i+& +an be an a++eptable 'ituation, a' t&e 2-item' pre'ent bot& lo0 demand and &i*&er ri'k o) e(+e''i/e in/entory +o't'! Pro&5re3ent an# Ware%o5se A''li&ations T%e res5lts of an ABC Analysis e<ten# into a n536er of ot%er in4entory &ontrol an# 3ana2e3ent 'ro&esses! Review of stocking levels: KAL item' 0ill *enerally &a/e *reater impa+t on pro1e+ted in/e'tment and pur+&a'in* 'pend, and t&ere)ore '&ould be mana*ed more a**re''i/ely in term' o) minimum and ma(imum in/entory le/el'C ina+ti/e item' 0ill )all to t&e bottom o) t&e prioriti:ed li'tC t&e bottom o) t&e K2L +ate*ory i' t&e be't pla+e to 'tart 0&en per)ormin* a periodi+ ob'ole'+en+e re/ie0! Cycle counting: t&e &i*&er t&e u'a*e, t&e more a+ti/ity an item i' likely to &a/eC to en'ure a++urate re+ord balan+e', &i*&er priority item' are +y+le +ounted more )re;uentlyC KAL item' are +ounted on+e e/ery ;uarterC KBL item' on+e e/ery 4 mont&'C and K2L item' on+e e/ery 12 mont&'! Identifying items for potential consignment or vendor stocking: Sin+e KAL item' tend to &a/e a *reater impa+t on in/e'tment, t&e'e 0ould be t&e be't
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ABC ANALYSIS
+andidate' to in/e'ti*ate t&e potential )or alternati/e 'to+kin* arran*ement' t&at 0ould redu+e in/e'tment liability and a''o+iated +arryin* +o't'! Turnover ratios and associated inventory goals: KAL item' 0ill &a/e *reater u'a*e t&an KBL or K2L item', and a' a re'ult '&ould &a/e *reater turno/er ratio'C 0&en e'tabli'&in* in/e'tment and turno/er metri+', in/entory data +an be 'e*re*ated by AB2 +la''i)i+ation, 0it& di))erent tar*et' )or ea+& +ate*ory!

8. Con&l5sion
.&e boundary bet0een +la'' A, +la'' B and +la'' 2 item' i' +learly de)ined!

.&e purpo'e o) t&i' +la''i)i+ation i' to en'ure t&at pur+&a'in* 'ta)) u'e re'our+e' to ma(imum e))i+ien+y by +on+entratin* on t&o'e item' t&at &a/e t&e *reate't potential 'a/in*'!

Sele+ti/e +ontrol 0ill be more e))e+ti/e t&an an approa+& t&at treat' all item' identi+ally!

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