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In ABC analysis, which class of items is generally large in number?
- ABC analysis is an important concept in inventory control.
- ABC analysis deals with the classification of the items based on their intrinsic or market values and Controlling inventory costs money.
- In addition to this intrinsic value, there will be a nuisance value to the items/materials.
- The nuisance value is the cost associated with materials due to their absence/shortage.
ABC Analysis categorizes products based on importance. Importance can be deduced from cash flows, lead time, sales volume, etc. The ranking factor is chosen and inventory is classified into A, B & C types.
Once a ranking factor is chosen, products are placed in descending order of importance. The actual and cumulative total sales revenue percentages for each product are calculated.
A-Class items: - These items consume a large portion of the total inventory investment and are less in number. Here the annual consumption cost of the material plays a vital role than the unit cost. It is found that there will be certain items that are few in number but they consume nearly 70% of inventory cost. Such items are classified as A-class items.
B-Class Items:-There will be certain materials, whose total annual consumption cost is 20 to 25% of total inventory investment and form 60 percent of the number of items stored.
C-Class Items:-These are large in number, maybe 30 to 35% of the total number of items stored, but consumes only 5 to 10 % of total inventory investment.
The products leading to approximately 70% sales revenues are classified as ‘A’ type. Products that are responsible for the next 20%, i.e. 70% to 90% sales revenues are categorized as “B’ type and remaining are of ‘C’ type.
There are different types of selective inventory control:
| ABC analysis(Always Better Control) | Inventory items are classified based on their annual usage value in monetary terms. |
Class A – item: 10 % of the item accounts 75% costs. Class B – item: 20% of the item accounts for 15% of costs. Class C – item: 70% of the item accounts for 10% of costs. |
| VED Analysis (Vital, Essential, Desirable) | Inventory items are classified on the basis of their criticality i.e. according to the cost of incurring a stock out |
V-Vital: Without which the production process would come to standstill E-Essential: Their non-availability will adversely affect the efficiency of the production system. It should be given second priority. D-Desirable: Without which the process is unaffected but is good if they are available for better efficiency. |
| SDE Analysis (Scarce, Difficult, Easily Available) | This type of analysis is useful in the study of those items which are scarce in availability |
S-Scarce: Imported items that are generally in short supply D-Difficult: These are available in market but not always traceable or immediately supplied E-Easily: Easily available in the market |
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HML Analysis (High, Medium, Low Cost)
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This type of analysis is similar to ABC analysis, except that cost per item is taken. |
H-Highest: Items whose unit cost is very high, or maximum are given top priority M-Medium: Items whose unit cost is of medium value L-Low: Items whose unit cost is low
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| FSND Analysis (Fast, Slow, Non-moving, Dead items) | Inventory items are classified in the descending order of their usage (Consumption rate/ movement value). |
F-Fast moving items: That are consumed in short span of time N-Normal moving items: That are consumed over a period of one year S-Slow moving items: These items are not frequently issued and consumed over a period of two years or more. D-Dead items: Consumption of such items are almost nil. It can also be taken as obsolete items |