By:Pavitha Raji

ABC analysis is also called as pareto analysis one of the most important consideration of control is the value of annual consumption of inventory items in a year Only a small number of inventory items consume a very large share of inventory consumption during the year A little large number of inventory items covers a moderate share of annual inventory consumption A very large number of items just cover a very small share of annual inventory consumption These facts gave rise to the concept of ABC analysis

It has been observed that in an industrial unit only 10% of items have 70% of annual inventory consumption 20% of items have 20% of annual inventory consumption 70% of the items have only 10% of annual inventory consumption Since 70% of annual consumption of inventory is covered by only 10% of the items in the inventory these items deserve highest attention and are classified as A items Similarly of the items covering 20% of the inventory investments are B class items Balance 70% of the inventory items are termed as C class items

The steps in computing ABC analysis are: 1. Determine the annual usage in units for each item for the past one year 2. Multiply the annual usage quantity with the annual unit price of each item to calculate the annual usage in rupees for each item 3. Item with highest rupees usage annual is ranked first. Then the next lower annual usage item is listed till the lowest item is listed in the last 4. Arrange the items in the inventory by cumulative annual usage and by cumulative percentage categories the items in A, B, and C categories

Items 1 2 3 4 5

Average usage 17 50 15 25 5

Unit cost 2.5 17 15 17 17

Annual usage

Rank

6
7 8 9 10

50
153 20 16 17

119
5 2.125 2.656 2.5

Items 1 2 3 4 5

Average usage 17 50 15 25 5

Unit cost 2.5 17 15 17 17

Annual usage 42.5 850 225 425 85

Rank

6
7 8 9 10

50
153 20 16 17

119
5 2.125 2.656 2.5

5950
765 42.5 42.5 42.5

Items
1 2 3 4 5 6

Average usage
17 50 15 25 5 50

Unit cost
2.5 17 15 17 17 119

Annual usage
42.5 850 225 425 85 5950

Rank
8 2 5 4 6 1

7
8 9 10

153
20 16 17

5
2.125 2.656 2.5

765
42.5 42.5 42.5

3
7 9 10

Items

Annual usage
5950 850 765 425 225 85 42.5 42.5

Cumulative annual usage

Annual usage percentage

Category

6 2 7 4 3 5 8 1

10
9 Total

42.5
42.5 8470

Items

Annual usage
5950 850 765 425 225 85 42.5 42.5

Cumulative annual usage

5950 6800 7565 7990 8215 8300 8342.5 8385

Annual usage percentage

Category

6 2 7 4 3 5 8 1

10
9 Total

42.5
42.5 8470

8427.5
8470

Items

Annual usage
5950 850 765 425 225 85 42.5 42.5

Cumulative annual usage

5950 6800 7565 7990 8215 8300 8342.5 8385

Annual usage percentage

70 80 89 94 97 98 98 99

Category

6 2 7 4 3 5 8 1

10
9 Total

42.5
42.5 8470

8427.5
8470

99.5
100

Items

Annual usage
5950 850 765 425 225 85 42.5 42.5

Cumulative annual usage

5950 6800 7565 7990 8215 8300 8342.5 8385

Annual usage percentage

70 80 89 94 97 98 98 99

Category

6 2 7 4 3 5 8 1

A B B C C C C C

10
9 Total

42.5
42.5 8470

8427.5
8470

99.5
100

C
C

Category

Items

% of items Rupees in in inventory the category 10 5950

% rupees in the category 70

2, 7

20

1615

19

1, 3, 4, 5, 8, 9, 10 10

70

905

11

Total

100

8470

100