Always better control (ABC) analysis has historically found application in inventory and materials control. Some scholars also refer to ABC analysis as Selective Inventory Control (Wild 39). ABC analysis is among the most established techniques in the field of business administration (Lun and Hung 157).The technique has proved useful in determining the frequency of counting various items.
We will write a custom Essay on Always better control (ABC) Analysis specifically for you
301 certified writers online
One of the leading policies governing ABC analysis is that items in category A are characterized by accurate records and tight control, while those in category B are characterized by good records and are less tightly controlled. In contrast, C items have the minimal records and have the simplest controls.
As such, the various products in an organization can be arranged into three classes namely, A, B, and C. There are a lot of similarities between the ABC analysis and the Preto principle in the sense that items in class ‘A’ represent a large portion of the cumulative value but a smaller percentage of items in use. For example, 20 percent of items in class ‘A’ could represent 70 percent of the value of items consumed in a year.
On the other hand, 30 percent of items in class ‘B’ accounts for 25 percent of the value of items consumed in a year (Wild 40). Finally, in class ‘C’, 50 percent of items in this category accounts for just 5 percent of the value of items consumed in the category annually. What this means is that ABC analysis tries to separate the most important products (those in class A) from the less important products (those in classes B and C).
ABC analysis presents us with a technique for categorizing items that have a huge effect on overall inventory control (Lun and Hung 158). The ABC analysis theory appears to suggest that different inventories of a firm are unequal in value (Wild 40). For this reason, they are grouped into various categories. The categorization of the items of an organization using the ABC analysis technique allows an organization to ascertain the worth of its inventory.
Accordingly, the organization is in a position to make the necessary adjustments to such inventories. For example, Class A items could be checked periodically and shipments of items in this category recorded and tracked carefully. On the other hand, items in Class B get less attention that those in Class A, while items in Class C get the least attention as they are less valuable than those in Class A.
One of the strengths of the ABC analysis is that it allows managers to exercise selective focus and control on a limited number of items, and more so when the manager is faced with less items.
Also, by concentrating mainly on the ‘A’ category, the materials manager is in a position to exercise control over inventories, in addition to demonstrating visible results within a short period of time. This also helps to identify obsolete stocks (Vollmann 89). The ABC analysis further allows the materials manager to reduce clerical costs, thereby leading to enhanced inventory turnover and planning.
In terms of weaknesses, the system does not provide proper codification and standardization of the inventory items needed. It also becomes difficult to make periodic reviews when only the ABC analysis is recalled. Another weakness of the system is that it only takes into account the monetary value of items at the expense of the significance attached to items of functioning, assembly, or production process.
Lun, Kee and Hung, Lai. Shipping and Logistics Management. London: Springer, 2010. Print.
Vollmann, Thomas. Manufacturing planning and control systems for supply chain management. New York: McGraw-Hill, 2005. Print.
Wild, Tony. Best Practice in Inventory Management, 2nd Ed. Oxford: Butterworth Heinemann, 2002. Print.