ABC Analysis may be defined as follows:
ABC Analysis is the process of dividing items into three classes according to their dollar usage so that managers can focus on items that have the highest dollar value.
The goal of this analysis is to identify the inventory levels of Class A items and allow the management to control them tightly by using levers as discussed in the previous post. These are the items which normally account for 20% of the inventory items but 80% of the dollar usage. Similarly, Class B items account for 30% of the inventory but 15% of the dollar usage. Finally, 50% of the rest of the inventory is categorized as Class C which only accounts for remaining 5% of the dollar usage.
ABC Analysis is the process of dividing items into three classes according to their dollar usage so that managers can focus on items that have the highest dollar value.
The goal of this analysis is to identify the inventory levels of Class A items and allow the management to control them tightly by using levers as discussed in the previous post. These are the items which normally account for 20% of the inventory items but 80% of the dollar usage. Similarly, Class B items account for 30% of the inventory but 15% of the dollar usage. Finally, 50% of the rest of the inventory is categorized as Class C which only accounts for remaining 5% of the dollar usage.
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