Effects Of Abc Analysis

911 Words4 Pages
ABSTRACT ABC analysis is a popular and effective method used to classify inventory items into specific categories that can be managed and controlled separately. It is not clearly possible for theorganizations that store hundreds of inventory items toeconomically design an inventory management policy for each inventory item separately. Moreover, various inventory items may play quite different roles in the business of the organization. Hence, the managers need to classify these items in order to control each inventory category properly based on its importance ratingto implement for large inventory systems becomes rather cumbersome because each item requires managements of order cycle and quantity. The inventory control problem is greatly simplified…show more content…
Therefore, it is particularlyimportant for all the organizations to establish the appropriate inventory control systems or to evaluate and improve the existing inventory control systems. Because on the one hand, the organization encounters the inventory-related Costs, including Cost of Holding, Cost of Ordering, Cost of Shortage the increase of each one due to the lack of a suitable inventory control system will have negative effects on the profitability of the organization. On the other hand, since the number of inventory items is largely increasing due to the increase of the customers’ demands for different products, the organizations should have a quick and effective response to the customers’ demands to survive and maintain their competitive advantage. Therefore, in order to create a perfect inventory control system, various inventory items should be classified into the significant categories based on appropriate criteria and standards.Various models and methods have been so far presented to classify inventory among which, ABC analysis approach is one of the most common methods which is widely used for planning and inventory control. The ABC approach states that, when reviewing inventory, a company should rate items from A to C, basing its ratings on the following…show more content…
The studies conducted in this paper show that the managers can use both “cost criteria” and “non-cost criteria” in the classification of warehouse inventory and formulate specific policies by using different criteria to manage warehouse inventory[1]. In 2007, an article was presented entitled “A simple classification for multiple criteria ABC analysis”. In this paper, a simple model is proposed for multiple criteria classification of the inventory. In fact, this model covers the criteria of all the criteria in a single criterion. The study conducted in this paper shows that by appropriate conversion of the scale model of different criteria of the inventory classification, the organizations can reach some criteria of the inventory items without need for linear optimization. The modelpresented in this paper can be widely used by the organizations with minimum experience in the optimization. The criteria reviewed in this article include: the dollar value of the annual consumption, the average cost of each unit, and lead

More about Effects Of Abc Analysis

Open Document