ABC analysis is a important tools in hand of purchase manager who has to handle thousands and lakhs of items of any manufacturing units as per scale .
Purchase manager can ask for ABC analysis for items for the unit and can put greater control or do more value analysis for the items which are categorised A , other categories are B and C .
These categories can be made by analyzing annual consumption of items in terms of volume and cost done in descending order and calculating the % contribution of items on total cost . Results would throw items which taken in account would constitute 70- 80% of the total value , these items would fall in category A , Balance which contributes to 25% would be put into CategoryB where as balance items can be classified into category C .
Importance of these Categories
Category A items : Frequently ordered items with minimum of stock .Weekly control statements . Centralised purchasing and storage for any manufacturing unit . Material planning runs should accurately predict the quantity to be procured . Reduce the lead time for such items . Eg Bearings in any light engineering unit. To be handled by senior procurement executive .
Category B items: These items are moderately controlled and orders issued would be maximum up to four or five . Periodic follow up and estimates done on annual consumption .
Category C items: These items can be stocked for larger period and can be ordered in bulk with one or two purchase order . Controls are least for such items and can be handled by junior executives .
Though most of the items which may fall in category C are of low volume and low cost but sometimes become critical if not monitored . For eg Belts in any light engineering unit . Stock out situation can occur if stocks are not monitored . For such instance one should have a general vendors which can supply these items on a sort notice even though one have to pay some premium for such service.