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What is ABC analysis?
A compressive way to define the entire inventory division technique is known as ABC analysis in business term. Its categorization is done into 3 parts; A, B, and C. this analysis technique is also known as selective inventory control.
Codes of ABC analysis
As the name suggests, as per the analysis system, a firm rates their commodities from A to C grades.
Under this code, the commodities are of the highest grade because of its inflated consumption value. The percentage of total inventory items is 10% to 20%. In this case, the annual consumption value is 70% to 80%. It has precise records with tight controls.
Under this code, the commodities are stated to be interclass because of its medium consumption value. The percentage of total inventory items is 30%. In this case, the annual consumption value is 15% to 25%. It has good records with moderate controls.
Under this code, the commodities have the lowest consumption value. The percentage of total inventory items is 50%. In this case, the annual consumption value is 5%. It has minimal records with easy controls.
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Managerial requirements of this analysis technique
Administrative bodies in a company use this analysis technique to monitor various activities such as,
- Reordering calculations
- Follow the planned steps taken for various stocking arrangement
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- Pareto principle
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- Use of this technique in inventories, and much more
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