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Maler/Bis Managatnflflt: An /ntBgffItfld Appf08Ch

analysis, as discussed ear'ier lQl!4y firms classify ""IUS as accounting for conswnpt.ion value of ,""ove Its. 10.(100, 'S' iDems betweea Rs 1,000 and Rs 10,000 an;! 'C' items less DilanRs I,OOp of anooal CORSI>mplion.These limits vacy <lel'endiftg upon b1aesize of b!ae'iicm:" The basic priaciples in ABC ",,<>lysis <e: (i) The analysis 00es n<>tdepend upon ~e unit cost ;15 annual coosumptioo value;

oi Ihc items bl.t only on

(ii) it does not depend om Dhe imporla7ce of Dhe i,tem; and (iii) Dheldmits for ABC calegorisation /Me not uniform but will depend upon lite size of tIie undertakin,g, its inventory as well ns the number of ilems , COltIrokd.

PURPOSE OF ABC ANALYSiS:

The object" of ClUI)'ing out ABC analysis is to develop policy guidelines for selective control. .' . Normally, oo<:e ABC analysis !las been done, .the following broad pOlicy guidelines ClIIIbe established in re)ljlect of each category: . . /

)'.ilems: High COlIs_lion ",,'uo,/

I. Very strict control 2: No safety stoCks
(or YCry low)

.,'

B.ilmu: ModeraJe value

C.ilelllJ:

Low consumption valln . Loose control High safety stocks Bulk ordering once In 6 months Quarterly control reports' Follow:up and.ei<pediting In exceptional cases Minimum value :lJ1alysls Two reliable sources'for each Item ' Rougb estimatesfor planning

Moderate control Low safety <tQCks Once in th,u months Monthly control reports Periodic follow.up , Moderate value ~a1ysis Two or more reliable sources Estimates based 00 past data on present plans

3. Frequent ordering or weekly deliveries 4. Weekly oootrol stalements S. Maximum follow.up . and expediting 6. Rigorous value analysis 7. AJ many sources as possible for each Item 8. ACcunuo forecasts in materials planning 9. Minimisation of wasle, , obsolete and surplus (review every 15 days)
10. Individual postlngs

Quarterly control over Annual review over surplus surplus and obsolete Items and obsolete material Small group posting' Combination purchasing Moderate Group poslings Decentrali,ed purchasing .. Minimum !=terical'efforts

11. een&.!
slo...,e

i>u;"baslng and

12. Maximum efforts to reduce lead' time 13. Must be handled by senior officers

Can be handled ~y' middle' Can be fully delegated

m~nagement

ABC Analysis

MECHANICS OF ABC 'ANALYStS

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The mechanics of classifying the ilems into 'A', in tbe following steps:

'n' ami

'C' categories is ~c[ibed "

I. Calculate rupee annual issues for each item ,in inventory by _l~lying 'M: unit cost by the number of units issued in a year. It is assume<f lhatthe

same .. 2. Sort all items by rupee """",al issues in descending sequence.

tne

i.ssues and consumption are

3. P"'1'are a list from these raml<ec;ll.ems showing item no., unh cost, annual i "MIs iuued al>CianMla! rupee value of ,,"iu issued. 4. Start'l\g at the ,top of the liSt, c~ i'gtota!, item-by-ilem issue value M>d the rupee eoasumt>ti<llil valtie. , 5. Coml>Ute and print for cacm irems Ible cu:_lative percenUlges for the item count and cumulativ~ aJI-Mlal iss\\le va,hIe.
j

a "",

The normal items in II\OSloegwsatiools

sblow the following pattern:

I. 5 per cent to 10 per CC!'t of the top "tlfIIber of ilems accOOlfl(for abOut 70 per cent of the total cOOsumption value. These items are called 'A' items. ' 2. 15 per cent to 20 perCellt of the number of items account for 20 per'c~~i of the tota! ,cOllsumptioft value: TIiese items are called 'n' items. ' 3, The remaining number of items account for the balance 15 per cent of th'e, total 'issue value. These itcms are called 'C' items: A graph on cumulative value against cumulative'percent of items is p"epared' (as in Exhibit 6.1) to visually scethe ABC categories. Instead'of doing ABC EXHlBIT'S.l ' 100 90

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Cumulative per cent number

10

'30

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