Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd
Upload
131 views

ABC Analysis

ABC analysis categorizes inventory items into A, B, C, and D categories based on their relative importance as measured by a criterion such as sales or consumption. Category A items account for the majority (around 80%) of the total criterion despite being a small number of items. Category B items account for the next largest portion (around 15%) and Category C the remaining small portion (around 5%). Category D items are dead stock that should be eliminated. The analysis aims to focus management attention on the most important Category A items according to the 80/20 Pareto principle.

Uploaded by

bismann
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
131 views

ABC Analysis

ABC analysis categorizes inventory items into A, B, C, and D categories based on their relative importance as measured by a criterion such as sales or consumption. Category A items account for the majority (around 80%) of the total criterion despite being a small number of items. Category B items account for the next largest portion (around 15%) and Category C the remaining small portion (around 5%). Category D items are dead stock that should be eliminated. The analysis aims to focus management attention on the most important Category A items according to the 80/20 Pareto principle.

Uploaded by

bismann
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

ABC/ABCD Analysis

ABC analysis is based on Pareto


Paretos Law, which
separates the trivial many from the vital
few. In inventory terms, this suggests that a
relatively small number of inventories items
account for considerable importance within a
firm
firm
s inventories.

Paretos Law (80/20 Rule)


Pareto
Pareto's Law is about concentrating on what's
important.
Stated simply: the significant items in any group
normally account for a relatively small
proportion of the total. For example, 80 % of
your sales probably come from 20 % of your
customers. So concentrating most energy on
this 20 % will bring you the best results.

Decision Steps for ABC Classification

Select some criterion, such as sales revenue,


material
material
s consumption, etc., for developing
the ranking.
Rank items in descending order of importance
according to this criterion and to calculate
actual and cumulative total sales revenue
(consumption) percentages for each item.
Group the items into ABC(D) categories.

ABCD Categories
A

a small part of the assortment items constituting the


main share (ca. 80 %) of the total sales/
consumption.
a slightly larger part of the assortment constituting a
medium share (ca. 15 %) of the total sales/
consumption.
a large part of the assortment items constituting
a small share (ca. 5 %) of the total sales/
consumption.
items, which may be dead - items which the
company should eliminate from its inventory.

ABC Analysis
Percentage of Total Sales

100
95
80
60

40
20
20

40

60

Percentage of Items

80

100

Case: ABC Analysis for Big


Orange Product, Inc.
Item
Code
64R
89Q
68J
37S
12G
35B
61P
94L
11T
20G
TOTAL

Annual Sales
(US$)
5 000
3 000
400
340
300
240
220
200
160
140
10 000

Percent of
Annual Sales
50,0
30,0
4,0
3,4
3,0
2,4
2,2
2,0
1,6
1,4
100,0

Cumulative %
Classif.
Sales
Items
Category
A
50,0
10,0
A
80,0
20,0
B
84,0
30,0
B
87,4
40,0
B
90,4
50,0
B
92,8
60,0
B
95,0
70,0
C
97,0
80,0
C
98,6
90,0
C
100,0
100,0
-

Lean Production Concept


The lean production concept was born about
30 years ago, as the foundation stone of the
Toyota Production System, whose father
was Toyota
Toyotas head designer Taichii Ohno.
He identified seven sources of waste:

Seven Sources of Waste

overproduction,
waiting,
transport,
unsuitable processes,
generation of unnecessary stock,
useless movement,
defects.

Principles of Lean Production Concept I.

system-based thinking including assessment


systemwith regard to total costs, and transparency of
processes,
reduction of complexity,
design of products respecting the
manufacturing and logistical aspects,
integration of suppliers and customers into
process chains and logistical management of
entire chains, i.e. from the suppliers to the
end--customer,
end

Principles of Lean Production Concept II.

reduction of the number of suppliers,


reduction of the volume of internal work, and
orientation to outsourcing,
focusing on the key competencies,
implementation of JIT and/or KANBAN,
elimination of wastage,
continuous improvement (Kaizen),
delegation of responsibilities to the
employees,
orientation to team cooperation.

You might also like