Question

Give the meaning of ABC analysis technique of inventory control.

Hint:

In ABC analysis: A = high value, B = moderate value, C = low value. Focus most on A to control inventory cost effectively.

Answer 1

ABC analysis is an inventory management method that classifies stock based on its significance, usually determined by annual consumption value (cost multiplied by usage). This method aligns with the Pareto Principle (80/20 rule), which suggests that a small fraction of items represent a large portion of the total inventory value.

ABC Analysis Categories:

A items: High importance, comprising approximately 70–80% of total inventory value but only 10–20% of item count.
B items: Moderate importance, accounting for roughly 15–25% of value and 30% of items.
C items: Low importance, making up only about 5–10% of value but 50–60% of items.

This categorization enables companies to concentrate control efforts on the most critical items (A items), thereby improving inventory oversight.