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ABC analysis
In materials management, ABC analysis is an inventory categorisation technique which divides inventory into three categories: 'A' items, with very tight control and accurate records, 'B' items, less tightly controlled and with moderate records, and 'C' items, with the simplest controls possible and minimal records. An ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance. 'A' items are very important for an organization. Because of the high value of these items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. "just-in-time") to avoid excess capacity. 'B' items are important, but less so than 'A' items, although more important than 'C' items. Therefore, 'B' items are intergroup items. 'C' items are marginally important.
There are no fixed thresholds for each class, and different proportions can be applied based on objectives and criteria which vary between companies. ABC analysis is similar to the Pareto principle in that the 'A' items will typically account for a large proportion of the overall value, but a small percentage of the number of items. Examples of ABC class are:
Another recommended breakdown of ABC classes:
Major ERP packages have built-in function of ABC analysis. User can execute ABC analysis based on user defined criteria and system apply ABC code to items (parts).
In the absence of an ERP system, ABC Analysis can also be done in MS Excel.
Computed (calculated) ABC analysis delivers a precise mathematical calculation of the limits for the ABC classes. It uses an optimization of cost (i.e. number of items) versus yield (i.e. sum of their estimated importance). Computed ABC was, for example, applied to feature selection for biomedical data, business process management and bankruptcy prediction.
Actual distribution of ABC class in the electronics manufacturing company with 4,051 active parts.
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ABC analysis
In materials management, ABC analysis is an inventory categorisation technique which divides inventory into three categories: 'A' items, with very tight control and accurate records, 'B' items, less tightly controlled and with moderate records, and 'C' items, with the simplest controls possible and minimal records. An ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance. 'A' items are very important for an organization. Because of the high value of these items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. "just-in-time") to avoid excess capacity. 'B' items are important, but less so than 'A' items, although more important than 'C' items. Therefore, 'B' items are intergroup items. 'C' items are marginally important.
There are no fixed thresholds for each class, and different proportions can be applied based on objectives and criteria which vary between companies. ABC analysis is similar to the Pareto principle in that the 'A' items will typically account for a large proportion of the overall value, but a small percentage of the number of items. Examples of ABC class are:
Another recommended breakdown of ABC classes:
Major ERP packages have built-in function of ABC analysis. User can execute ABC analysis based on user defined criteria and system apply ABC code to items (parts).
In the absence of an ERP system, ABC Analysis can also be done in MS Excel.
Computed (calculated) ABC analysis delivers a precise mathematical calculation of the limits for the ABC classes. It uses an optimization of cost (i.e. number of items) versus yield (i.e. sum of their estimated importance). Computed ABC was, for example, applied to feature selection for biomedical data, business process management and bankruptcy prediction.
Actual distribution of ABC class in the electronics manufacturing company with 4,051 active parts.