… Close and strict control is facilitated on the most important items which help in overall inventory valuation or overall material consumption. The accurate cost information helps the management to adopt productivity improvement approaches like Total Quality Management (TQM), Business Process Re-engineering (BPR) etc.. 8. Rule of ABC Analysis. – A free PowerPoint PPT presentation (displayed as a Flash slide show) on PowerShow.com - id: 3cbbe5-NThkY XYZ Analysis. • Concentration by the following trisection: Advantages of the ABC Analysis • Analysis of complex problems with justifiable effort (by focussing on the essential factors) Advantages of ABC Analysis: 1. ABC analysis of inventory is a process of classifying the products based on the value of importance. Categorization of inventory items enables the inventory manager to focus on those that are most valuable. Under this method materials are classified into three categories in accordance with their respective values. 7. (Always Better Control) method is of immense use. Proper regulation of investment in inventory which will ensure optimum utilization of available funds. ABC Analysis In order to exercise effective control over materials, A.B.C. The management can take make or buy decisions by considering the cost of manufacture of a product or sub contract the same with an outside agency through Activity Based Costing analysis. Class C – forms 50% of the stock in terms of quantity but commands only 55 of the value. However, there are limitations of the model. 2. When it comes to stock or inventory management, ABC analysis typically segregates inventory into three categories based on its revenue and control measures required: A is 20% of items with 80% of total revenue and hence asks for tight control; B is 30% items with 15% revenue; whereas ‘C’ is 50% of the things with least 5% revenue and hence treated as most liberal. Implementation in an Organization. Activity-based costing is more effective when used in long-term rather than in short-term. Traditionally, costing exercises have relied a lot on broad averages. ABC-Analysis 17 Summary Characteristics of the ABC Analysis • General classification of characteristic values in respect of the importance with certain operating figures. As discussed in our post on the importance of ABC analysis in inventory management, ABC analysis can be very beneficial as a simple way to prioritize your workload and help reduce the hours spent ordering and managing inventory. A presentation on the framework of Activity-Based Costing. Determining the difference and classifying these accordingly is the starting point of any successful inventory management system. The five advantages of an effective ABC analysis [Updated] In the land of inventory, not all things are equal, and each stock item behaves differently. The advantages of ABC analysis are as follows: Decrease in working capital needs. 3. 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