ABC Analysis

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.













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