What is ABC Inventory Control System?
ABC Inventory Control System – It refers to the analysis of inventory into three different classes – A, B and C Class.
In simple words, under ABC inventory system, the inventory is classified into three classes – A, B and C.
- A category inventory means outstandingly important
- B category involves inventory with average importance.
- C category involves those inventory which is relatively unimportant.
Under ABC Inventory control system more emphasis is given to category A inventory and less to B and C category inventory. This concept is also known as “80/20” rule which is a thumb rule for inventory management. The “80/20” rule means that 80% of the rupee value lies on the 20% of items. This inventory management system is very popular and is used be the managers very often.
ABC concept of Inventory control system is derived from Pareto’s 80/20 rule curve. According to this rule, Annual consumption estimates rupee value of each individual inventory item.
- A Class – 10 – 20% of the items accounts for 80% of the consumption.
- B Class – Next 20 to 25% of items accounts for 10-20% of consumption.
- C Class – Next 65 – 70% items accounts for just 5 – 10% of consumption.
Also Read>>> Just in Time Inventory
What is ABC Inventory System is all about?
ABC is a material management process which concentrates on arranging stocks, calculates reorder points and determine the inventory check intervals.
The basic purpose of ABC Inventory control system is to identify those items which are most important and whose consumption rate is very high. This system allows the manager to assign priorities to the inventory control system. Managers needs strict control over A and B category inventory. C category inventory requires less control and high level of safety stock.