## ABC Analysis
Concept: Group all inventory items into three categories based on their annual use value (value consumed per year). Control effort is concentrated where it matters most.
> ABC Analysis = Always Better Control
### The Three Categories
| Category | % of Total Items (by count) | % of Total Inventory Value (by use value) | Control Level |
|---|---|---|---|
| A | ~10% | ~70% | Very strict / tight control |
| B | ~20% | ~20% | Moderate control |
| C | ~70% | ~10% | Loose control (simple records) |
### Key Insight
- A-category items are few in number but high in value → deserve maximum management attention.
- C-category items are many in number but low in value → can be managed with simple systems.
### Steps to Perform ABC Analysis
1. List all inventory items with their annual consumption (units × unit cost).
2. Sort by annual use value (highest to lowest).
3. Calculate cumulative use value %.
4. Assign A (top ~70% of value), B (next ~20%), C (remaining ~10%).
### How Control Varies by Category
| Parameter | A Items | B Items | C Items |
|---|---|---|---|
| Safety stock | Low | Moderate | High |
| Reorder frequency | High (small, frequent orders) | Moderate | Low (large, infrequent orders) |
| Record keeping | Detailed | Standard | Minimal |
| Review by | Top management | Middle management | Junior staff |