Question

Give the meaning of ABC analysis technique of inventory control.

Hint:

In ABC analysis: A = high value, B = moderate value, C = low value. Focus most on A to control inventory cost effectively.

Answer 1

ABC analysis is an inventory control technique that categorizes inventory items based on their importance, typically measured by annual consumption value (cost × usage). It follows the Pareto Principle (80/20 rule), which states that a small percentage of items account for a large percentage of the total inventory value.

Categories in ABC Analysis:

A items: Very important — constitute about 70–80% of the total inventory value but only 10–20% of the total items.
B items: Moderately important — account for about 15–25% of the value and 30% of the items.
C items: Least important — form only about 5–10% of the value but 50–60% of the total items.

This classification helps businesses focus control efforts where they matter most (on A items), allowing for better inventory management.