Question

Give the meaning of ABC analysis technique of inventory control.

Answer 1

ABC Analysis is based on Pareto’s Principle (the 80/20 rule), which states that a small percentage of items (typically 20%) account for a large share (usually 80%) of the value, while the remainder has a smaller impact.

In ABC Analysis:

• A-items: Make up about 20% of the SKUs but contribute to 80% of the value. These require the most attention and tight inventory control.
• B-items: Account for about 30% of the SKUs and contribute to 15% of the value. They require moderate attention.
• C-items: Represent about 50% of the SKUs but contribute only 5% of the value. These can be managed with less focus and simpler controls.

This split helps companies allocate their time and budget so that important tasks receive the care they need and less important tasks receive less attention.