ABC analysis

ABC analysis

ABC analysis is a business term used to define an inventory categorization technique often used in materials management.

ABC analysis provides a mechanism for identifying items which will have a significant impact on overall inventory cost [Manufacturing planning and control systems for supply chain management By Thomas E. Vollmann] whilst also providing a mechanism for identifying different categories of stock that will require different management and controls [ How to carry out an ABC analysis of inventory]

When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands [Oracle E-Business Suite Manufacturing & Supply Chain Management By Bastin Gerald, Nigel King, Dan Natchek] . These bands are called ABC codes.

ABC codes

# "A class" inventory will typically contain items that account for 80% of total value
# "B class" inventory will have around 15% of total value
# "C class" inventory will account for the remaining 5%

ABC Analysis is similar to Pareto in that the "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory. [Purchasing and Supply Chain Management By Kenneth Lysons, Brian Farrington]


ee also


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