A.B.C. Analysis (or Proportional Parts Value Analysis) is a technique followed for the purpose of exercising control over materials according to their importance or value.
Under this system, all the items of material are classified into three categories A, B and C according to their value.
Category ‘A’ consist of materials which constitute 5% to 10% of the total items in the store and represent 70% to 85% of the total store value; Category ‘B’, the items constituting 10% to 20% of the total items in the store and 10% to 20% of the store value and category ‘C’, the items constituting 70% to 85% of the total items and representing 5% to 10% of the store value.
Thus, category ‘A’ represents items with small quantity but high value, category ‘B’ represents items with medium quantity and value while category ‘C’ represents items with high quantity but small value. The percentages given above are by way of guidelines only and are not fixed. These can be modified as per the choice and requirements of the management.
Under A.B.C. Analysis of materials, items of material falling under category ‘A’ must be closely controlled at all stages of handling viz., purchasing, receiving, inspecting, storing and issuing. In respect of items falling under category ‘C’, elaborate control procedures are not necessary. The routine of indenting, purchasing, storing and issuing materials can be simplified for these items. The items under category ‘B’ receive as much attention as items under category ‘A’ but the frequency of purchases and issues are so planned as to keep them at the minimum.
A.B.C. Analysis of Materials is also known as ‘Always Better Control Method‘ since it aims at obtaining maximum control over materials and minimum cost of control through equitable distribution of time, attention and cost involved in material control with reference to value.
Advantages of A.B.C. Analysis
The main advantages of A.B.C. Analysis of materials can be given as follows:
- It ensures closer control over costly items of material in which considerable amount of capital is locked.
- It leads to reduction in carrying costs.
- It enables to keep enough safety stock for items falling under category ‘C’.
- It enables to maintain high stock turnover rate.