Always Better Control Analysis: Method of Inventory Control

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The A.B.C. (Always Better Control) Method of Inventory Control will teach you how to make a proper stock count using statistics and graphs! The main goal of inventory management is to reduce inventory carrying expenses. Inventory does not have to be equally valued. A small number of critical goods account for the vast majority of total stock investment, while a huge number of objects has little bearing on the outcomes.

As a result, minimum stock management is necessary on the first kind of goods than on the others. The quantity of expensive items must be kept to a bare minimum. Items that are bulky but inexpensive are kept in large quantities since frequent ordering of such things is more expensive. Items are divided into two categories: “A” and “C,” with the items halfway between these classified as “B.” Items in category A receive the most attention since they are the stock’s most essential class, whereas items in class B get some focus because they represent an intermediate position.

The maximum amount of money that you can make an item be worth is determined by the position in which it appears. In each category, items are given equal weight, but their actual importance is assigned according to their position. This form of inventory control is known as ABC analysis. The table below offers a hypothetical illustration of ABC classifying.

As a result of the ABC evaluation, we have discovered that there is a potential saving of 22.5 percent. The ABC analysis aids in the concentration of control efforts in areas where they are most needed. It’s important to keep in mind that multiple categories of inventory are not prohibited by the ABC analysis.

It’s not the amount of stuff that determines whether something is classified as a high, medium, or low priority; rather, it’s about how much people value the items and not the physical quantities. An object in category C may be significant because its absence might obstruct production. As a result, management must be cautious. The A.B.C. (Always Better Control) Method of Inventory Control (with statistics and figure).

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Steps in ABC analysis

The steps involved in ABC analysis are as follows:

  • The annual usage value of each object is calculated by multiplying the quantity used with the price of the item.
  • In order to sort items in descending order, establish the usage value of each one.
  • Compute each item’s percentage of the total usage value.
  • Find the average inventory of each item by dividing the usage value by 2 and the number of orders.

Advantages of ABC Analysis

  • It helps you maintain better control over the pricey items in which a significant amount of money has been invested.
  • It aids in the formation of a scientific approach to inventory management. Clerical expenses are reduced, and stock is kept at an optimal level.
  • It aids in maintaining a higher stock turnover rate by utilizing scientific inventory administration.
  • It lowers storage expenses dramatically. It results in the transportation of inventory.
  • It aids in the maintenance of a sufficient safety stock for C-size goods.

Limitations of ABC analysis

The ABC analysis is not the end-all, be-all of inventory management. It must be complemented with more thorough monitoring and executive judgment. Items ending in C may be necessary for smooth manufacturing; as a result, their stock levels should be closely tracked.

Because the number and value of goods may fluctuate, regular review of categorization is essential in practice, with items falling into C category being numerous and requiring a lot of time to manage. As a consequence, adequate time may not be available for A and B categories to be effectively managed.

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