#1 ABC Analysis Concept - Inventory Control - Material Cost - By Saheb Academy - CA INTER
Saheb Academy・2 minutes read
ABC analysis is a technique of inventory control based on relative classification, also known as the Always Better Control method, utilizing the Pareto principle to categorize inventory into A, B, and C based on descending value for appropriate management strategies. Managers prioritize tight control for Category A, medium control for Category B, and basic control for Category C to optimize inventory management efficiency.
Insights
- ABC analysis categorizes inventory into three groups (A, B, and C) based on value, with Category A holding the highest value but the lowest quantity, emphasizing tight control and frequent monitoring to prevent stockouts.
- This technique, rooted in the Pareto principle, highlights the importance of focusing efforts where they yield the most significant results, with Category A items constituting 70% of total inventory value despite representing only 10% of quantity, guiding managers to allocate resources effectively for optimal inventory management.
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Recent questions
What is ABC analysis in inventory control?
ABC analysis is a technique that classifies inventory items based on their relative importance in terms of value.
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Summary
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ABC Analysis: Efficient Inventory Control Technique
- ABC analysis is a technique of inventory control based on relative classification.
- Other techniques under relative classification include HML analysis, FSND analysis, and WEED analysis.
- ABC analysis is also known as the Always Better Control method.
- The technique is based on the Pareto principle, where 80% of results come from 20% of efforts.
- Inventory is divided into three categories: A, B, and C, based on descending value.
- Category A has the highest value, with 10% quantity but 70% value of total inventory cost.
- Category A requires tight control, frequent orders, and proper levels to avoid stockouts.
- Category B has medium value and control, while Category C has the lowest value and basic control.
- Managers focus on Category A for tight control, Category B for medium control, and Category C for basic control.
