ABC INVENTORY CONTROL In inventory systems, only a small number of items present the most critical values.

ABC inventory control separates the most significant items from the less important. It is used to determine the degree and the level of control used. ABC Classification: Under the ABC inventory control policy, Inventory items are classified into three groups of items.

A Items: These are the 20% of the items that tie up 80% of the total inventory money. B items: These are the 30% of the items that tie up 15% of the total inventory money. C items: These are the 50% of the items that tie up 5% of the total inventory money.

ABC Classification Process: i) Establish the item characteristics that influence the result of inventory management. Such characteristics include Annual usage rate Scarcity of material Quality problems ii) Classify items into groups based on the criteria established. iii) Apply a degree of control in proportion to the importance of the group.

Procedure of ABC Classification: The procedure is summarized in the following steps: 1. Determine the annual usage for each item. 2. Multiply the annual usage of each item by its cost to get its total annual money usage.

3. List the item according to their annual money usage. Calculate cumulative annual money usage and the cumulative percentage of items. 4. Examine the annual usage distribution and group the items into A, B, and C groups based on the percentage of annual usage. Control based on the ABC classification: In general, it is recommended to stock up plenty of low value items. Group A items should be observed closely and tight control on them should be applied. Group B items are less critical; therefore, they require control that is less than item A. It is sufficient to lightly monitor items in group C.

ABC Analysis: YEAR 2008-2009 Table No: 16 Description CRCS sheets, strips & coils (Tons) Others Copper wire (tons) Tungsten contacts (Imported) (pcs) E core stack assembly (Nos) Rods (tons) CRSS (Imported) (tons) Nylon polymers (tons) Terminal connectors (Nos) ABS Black (tons) Alu-Zinc Alloy coated steel sheets (tons) Aluminum Ingots (tons) Condensers (Nos) Rubber Bush (Nos) Powder coating materials

(Rs in lakhs) Value (Rs) Cumulative Value(Rs) 909.88 1756.16 2289.48 2587.45 2817.17 3023.65 3150.81 3276.63 3397.12 3550.5 3627.28 3669.48 3697.4 3719.27 3739.97 Percentage Class A 909.88 846.28 533.32 297.97 229.72 206.48 127.16 125.82 120.49 153.38 76.78 42.2 27.92 21.87 20.7 24.33 46.96 61.22 69.18 75.33 80.85 84.25 87.61 90.83 94.93 96.99 98.12 98.86 99.45 100 A A B B B B C C C C C A A A

A Items: 20% of the items that tie up 80% of the total inventory money. B items: 30% of the items that tie up 15% of the total inventory money. C items: 50% of the items that tie up 5% of the total inventory money.

Inference: It is recommended to stock up plenty of low value items.

Group A items should be observed closely and tight control on them should be applied. Group B items are less critical; therefore, they require control that is less than item A. It is sufficient to lightly monitor items in group C.