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.
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