ABC ANALYSYS:-
An ABC method of analysis is the method devised to effect economy in the expenditure of available resources in the purchase of stock with the help of this method it is used to keep a close control on each and every item of stock to be received daily and receipts regulated so that stock are kept low but sufficient enough to meet all demands. Since such close control on each item is neither possible with the available resources nor it is justified, hence a system of selective central check has been adopted. This is what the ABC method seeks to do. Item involving heavy cost are most carefully controlled whereas the items involving little value need little or any control. A.B.C is therefore a method of selective control by which items whose annual usage value is high, are given maximum attention and stocks kept at low level. This is achieved in two parts as under:
a) An ABC analysis in which all items in stocks are analyzed and classified according to descending order of their annual usage value.
b) A.B.C. control which consists of determining the extent of attention and control be exercised within the limitation of the existing staff officer’s strength and each of the three categories of items.
Categorization of items (ABC)
1. AA Category: All items having annual usage value of above Rs.5 lakhs.
2. A Category: All items having annual usage value between Rs.50,000 and Rs.5 lakhs in these cases stock should not exceed more than 3 months requirements.
3. B1 Category: All items having annual usage of Rs.25,000 and above but below Rs. 50,000 in these case the stock should not exceed six months requirements.
4. B2 Category: All items having annual usage value of Rs.10,000 and above but below Rs.25,000 in these cases the stock should not exceed six months requirements.
5. C Category: All items having annual usage value of below Rs.10, 000. In these case the stock not to exceed 12 months requirements.
6. D Category: All items which have not moved more than one or two years.
A review once a year is conducted to see that these categories have been clearly market on ‘P.L.Cards’ and on the ‘stocks in hand file’ to indicate the category to which it belongs i.e. category A, B or C or D.
OBJECT
The object of ABC analysis is to achieve better inventory management i.e. the lower inventory level and higher service efficiency with a saving on the dividend liability due to a reduction in store Balances. ABC analysis ensures not only low inventory but also reduction in office work.
: Inventory Control: - The ABC analysis in Inventory Control means to analyses various items of stock into 3 categories A, B and C according to their value in descending order, as explained below, with a view to effect economy.
The ABC analysis divides the items into 3 parts.
A Items: - Being those items which involves large amounts of value and must, be controlled as rigidly as possible. (15 lakh above)
B Items: - Being those items which involves moderate value and therefore require careful but not rigid control. (2.25 lakh to 15 lakh)
C Items: - Being those items which involve a little value and therefore, require only minimum amount of control. (C1 Items value 25000/- to 2.25 lakh) and (C2 items up to 25000/-)
value is Red is different from railway to railway.
In SR for 2017-18 A category is Rs 43 Lakhs and above; B category is between Rs 7 lakhs and Rs 43 lakhs; C category is Rs 7 lakhs and less
The relative position of these categories as been shown as under for total consumption during a period
A-items B-items C-items
Quantity 10% 30% 60%
Value 10% 20% 10%
Checks exercised 3 months 6 months 1 year
between to 6 months to 1 year
The basic principle of ABC method of stock control is economy in expenditure in expenditure of available resources to optimize results. The closet control is that each and every item would be revised daily / periodically as may be prescribed and receipts regulated so that stocks are kept low but yet full compliance of demands is achieved. Since such close control on each item in neither possible with the available resources nor it is justified by the results that can be expected, a system of selective control as to adopted. This is what the ABC method seeks to do, that the items which are costly they are given the maximum attention to reduce wastage and there stock levels are frequently checked keeping in mind the pattern of consumption. Where the items involving less value is given lesser attention. These items are purchased in bulk quantities and consumed over time.
The introduction of ABC analysis system as proved useful in respect of efficient inventory control by the Railway Management by adopting the following step.
1. Codification of all items being held in stock on all India basis using 8 digit Numerical Code adopting semi significant system keeping in view the needs for complete computerization of all operations in Materials Management.
2. Application of the concept of Economic order quantity in purchasing.
3. Variety reduction of the item held in stock.
4. Streamlining of the procedures followed for purchases / disposal etc. With a view to eliminate in fructuous checks and ensure grater decentralization and quick decision making.
5. Expeditious disposal of surplus, obsolete and scrap materials and simplification of procedures thereof.
6. Wider dissemination of information on modern concept of Inventory Management including value analysis amongst all the officers and Staff concerned through lectures, conferences and training courses etc.
7. Enforcing re-order level system of recoupment except for items procured through centralized agencies where annual system of procurement was continued.
8. Adoption of product valuation techniques for examining reasonable of the offer.
9. Mechanization / Computerization of stores accounting and inventory control functions on a predetermined phased basis, starting with inventory accounting and gradually extending to other fields.
An ABC method of analysis is the method devised to effect economy in the expenditure of available resources in the purchase of stock with the help of this method it is used to keep a close control on each and every item of stock to be received daily and receipts regulated so that stock are kept low but sufficient enough to meet all demands. Since such close control on each item is neither possible with the available resources nor it is justified, hence a system of selective central check has been adopted. This is what the ABC method seeks to do. Item involving heavy cost are most carefully controlled whereas the items involving little value need little or any control. A.B.C is therefore a method of selective control by which items whose annual usage value is high, are given maximum attention and stocks kept at low level. This is achieved in two parts as under:
a) An ABC analysis in which all items in stocks are analyzed and classified according to descending order of their annual usage value.
b) A.B.C. control which consists of determining the extent of attention and control be exercised within the limitation of the existing staff officer’s strength and each of the three categories of items.
Categorization of items (ABC)
1. AA Category: All items having annual usage value of above Rs.5 lakhs.
2. A Category: All items having annual usage value between Rs.50,000 and Rs.5 lakhs in these cases stock should not exceed more than 3 months requirements.
3. B1 Category: All items having annual usage of Rs.25,000 and above but below Rs. 50,000 in these case the stock should not exceed six months requirements.
4. B2 Category: All items having annual usage value of Rs.10,000 and above but below Rs.25,000 in these cases the stock should not exceed six months requirements.
5. C Category: All items having annual usage value of below Rs.10, 000. In these case the stock not to exceed 12 months requirements.
6. D Category: All items which have not moved more than one or two years.
A review once a year is conducted to see that these categories have been clearly market on ‘P.L.Cards’ and on the ‘stocks in hand file’ to indicate the category to which it belongs i.e. category A, B or C or D.
OBJECT
The object of ABC analysis is to achieve better inventory management i.e. the lower inventory level and higher service efficiency with a saving on the dividend liability due to a reduction in store Balances. ABC analysis ensures not only low inventory but also reduction in office work.
: Inventory Control: - The ABC analysis in Inventory Control means to analyses various items of stock into 3 categories A, B and C according to their value in descending order, as explained below, with a view to effect economy.
The ABC analysis divides the items into 3 parts.
A Items: - Being those items which involves large amounts of value and must, be controlled as rigidly as possible. (15 lakh above)
B Items: - Being those items which involves moderate value and therefore require careful but not rigid control. (2.25 lakh to 15 lakh)
C Items: - Being those items which involve a little value and therefore, require only minimum amount of control. (C1 Items value 25000/- to 2.25 lakh) and (C2 items up to 25000/-)
value is Red is different from railway to railway.
In SR for 2017-18 A category is Rs 43 Lakhs and above; B category is between Rs 7 lakhs and Rs 43 lakhs; C category is Rs 7 lakhs and less
The relative position of these categories as been shown as under for total consumption during a period
A-items B-items C-items
Quantity 10% 30% 60%
Value 10% 20% 10%
Checks exercised 3 months 6 months 1 year
between to 6 months to 1 year
The basic principle of ABC method of stock control is economy in expenditure in expenditure of available resources to optimize results. The closet control is that each and every item would be revised daily / periodically as may be prescribed and receipts regulated so that stocks are kept low but yet full compliance of demands is achieved. Since such close control on each item in neither possible with the available resources nor it is justified by the results that can be expected, a system of selective control as to adopted. This is what the ABC method seeks to do, that the items which are costly they are given the maximum attention to reduce wastage and there stock levels are frequently checked keeping in mind the pattern of consumption. Where the items involving less value is given lesser attention. These items are purchased in bulk quantities and consumed over time.
The introduction of ABC analysis system as proved useful in respect of efficient inventory control by the Railway Management by adopting the following step.
1. Codification of all items being held in stock on all India basis using 8 digit Numerical Code adopting semi significant system keeping in view the needs for complete computerization of all operations in Materials Management.
2. Application of the concept of Economic order quantity in purchasing.
3. Variety reduction of the item held in stock.
4. Streamlining of the procedures followed for purchases / disposal etc. With a view to eliminate in fructuous checks and ensure grater decentralization and quick decision making.
5. Expeditious disposal of surplus, obsolete and scrap materials and simplification of procedures thereof.
6. Wider dissemination of information on modern concept of Inventory Management including value analysis amongst all the officers and Staff concerned through lectures, conferences and training courses etc.
7. Enforcing re-order level system of recoupment except for items procured through centralized agencies where annual system of procurement was continued.
8. Adoption of product valuation techniques for examining reasonable of the offer.
9. Mechanization / Computerization of stores accounting and inventory control functions on a predetermined phased basis, starting with inventory accounting and gradually extending to other fields.
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