Always Better Control (ABC)
• The ‘ABC’ (Always Better Control) Analysis is based on Pareto’s Law.
• In ‘ABC’ analysis, the items are classified in three main categories based on their annual respective usage value:
• A – items require strict control with its stockout probability kept at minimum level, whereas C – items do not need much control and B – items require a lesser tight control.
Annual usage value = (Annual Requirement) × (per unit cost)
Category ‘A’ Items
Most costly and valuable items.
• 10% of items accounts for 75% of total capital invested in inventory.
• More careful and closer control is needed.
• The items of this category should be ordered frequently but in small numbers.
• A periodic review policy should be followed to minimize the shortage (%) of such items and top inventory staff should control these items.
• More effort is made to reduce lead time.
Category ‘B’ Items
These items having average consumption value.
• Nearly 15% of the items in an inventory accounts for 15% for the total investment.
• These items have less importance than ‘A’ items, but cannot be overlooked and require lesser degree of control than those in category A.
• Statistical sampling is generally useful to control them.
• Moderate effort is made to reduce lead time.
Category ‘C’ Items
These items having low consumption value.
• Nearly 75% of inventory items account only for 10% of the total invested capital.
• Such items can be stocked at an operative place where people can help themselves with any requisition formality.
• In fact loose control of ‘C ’ items increase their investment cost and expenditure on shelf-wear, obsolescence and wasteful use, but this will not be so much to offset for the saving in recording costs.
