ABC Analysis

 A-B-C Analysis : 

This analysis is based upon Pareto Principle according to which in many situations, majority of the activity is governed by very few attributes. 

About 5% of the total stock items account for 70% of the total value of the item stocked. These are called as ‘A’ category items. 

About 15% of the total stock items account for 20% of the total value of the item stocked. These are called as ‘B’ category items . 

About 80% of the total stock items account for only 10% of the total value of the item stocked. These are called as ‘C’ category items 

For the purpose of Inventory Control, A category items are most important. Therefore, they are closely monitored at highest level at very frequent intervals. 

Stock verification: 

of A category items is carried out every six months;
for B category items every year and
once in two years for C category items.

To achieve better inventory turnover ratio, we intend to keep average stocks of 3 months, 6 months and 12 months of A, B and C category items respectively. 

A-B-C Analysis:This analysis is based upon Pareto Principle according to which in many situations, majority of the activity (say 80%) is governed by very few (say to 20%) attributes. Hence, if in Stores all the Stock items are analysed in terms of their annual consumption - usage value, major part of total consumption value say 70% is represented by around 10% of total items, 20% of total annual usage value is controlled by 20 % of total items, and remaining 10 % of total consumption value is represented by a large number (say 70%) of small consumption value items. In Railways we have decided that all high consumption value items which represent 70% of total annual usage value, will be classified as "A" category, items which represent further 20% of total usage value will be classified as "B" category and all remaining items representing 10% consumption value will be "C" category. This analysis is done on the computer as explained below:

(a)  First of all annual issue values of all the items which were issued from all the depots are added together to find total issues (in rupees) of the Railway,

(b)  Then all the items are sorted in descending sequence of their issue value on the entire Railway (i.e. after adding issues of all individual depots),

(c)  Then we go on counting the items adding issue value of the items to a " cumulative issue value" counter. When the value in this counter represents 70% of total issues after adding a particular item, all the items from top to this item are classified as "A" category items,

(d)  This is further continued and when after adding issue value of an item to "cumulative issue value" counter, value in the counter is equal to 90% of total issues, we mark all items excluding “A” category items to the last item as "B" category items,

(e)  All remaining items are classifies as "C" category items.

 

For the purpose of  Inventory control, "A" category items are most important. Therefore, they are closely monitored at highest level at very frequent intervals. In Railways, their stock levels, consumption forecast etc., ate monitored at the level of COS /CMM every month. "B" category items are monitored at the level of CMM/Dy.CMM every quarter or every six months. Stock verification of "A" category items is carried out every six months; for "B" category items every year and once in two years for "C" category. To achieve better inventory turn over ratio, we intend to keep average stocks of 3 months, 6 months and 12 months of "A”, "B" and "C" category items respectively.