The Abc Analysis
ABSTRACT
The ABC analysis is a well known and practical classification of inventory items based on the Pareto principle. The purpose of ABC analysis is to classify the inventory into different groups of A, B, or C, according to importance based on measure of a criterion. Traditionally, the classification of inventory into the A, B, or C categories have generally been based on dollar value per unit multiplied by annual usage rate, commonly known as dollar usage. In recent years, several multi criteria inventory classification technique has been introduced. Apart from unit price and usage, other criteria like leadtime, number of hits, average per hit, ordering cost, scarcity, durability, substitutability, reparability, commonality, criticality etc. has been taken into consideration. In this paper we are addressing multi-criteria ABC inventory classification and a methodology to standardized each criterion and weight them for classification. The weight for each criterion is based on simple exponential smoothing weight assignments. With inclusion of weight for each criteria and normalizing the data a score is obtained for each item and the classification is done based on the normalized score. The procedure to standardize the criterion and weight is easy to understand by inventory managers.
INTRODUCTION
ABC inventory management deals with classification of the items in an inventory in decreasing order of annual dollar volume. This array is then split into three or more classes, called A, B, and C. The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: A - outstandingly important; B - of average importance; C - relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and less to C. Class A contains the items with the highest annual dollar volume and receives the most
The ABC analysis is a well known and practical classification of inventory items based on the Pareto principle. The purpose of ABC analysis is to classify the inventory into different groups of A, B, or C, according to importance based on measure of a criterion. Traditionally, the classification of inventory into the A, B, or C categories have generally been based on dollar value per unit multiplied by annual usage rate, commonly known as dollar usage. In recent years, several multi criteria inventory classification technique has been introduced. Apart from unit price and usage, other criteria like leadtime, number of hits, average per hit, ordering cost, scarcity, durability, substitutability, reparability, commonality, criticality etc. has been taken into consideration. In this paper we are addressing multi-criteria ABC inventory classification and a methodology to standardized each criterion and weight them for classification. The weight for each criterion is based on simple exponential smoothing weight assignments. With inclusion of weight for each criteria and normalizing the data a score is obtained for each item and the classification is done based on the normalized score. The procedure to standardize the criterion and weight is easy to understand by inventory managers.
INTRODUCTION
ABC inventory management deals with classification of the items in an inventory in decreasing order of annual dollar volume. This array is then split into three or more classes, called A, B, and C. The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: A - outstandingly important; B - of average importance; C - relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and less to C. Class A contains the items with the highest annual dollar volume and receives the most