ABC INVENTORY MANAGEMENT SYSTEM

In materials management, ABC analysis is an inventory categorization technique. ABC analysis divides an inventory into three categories—"A items" with very tight control and accurate records, "B items" with less tightly controlled and good records, and "C items" with the simplest controls possible and minimal records.
‘C Classification’ items are very important for an organization. Because of the high demand of these ‘A’ items, frequent value analysis is required. These are your fast moving and typically lower value items that drive the largest percentage of your target service levels and customer satisfaction rates.
'B Classification’ items are important, but of course less important than ‘A’ items and more important than ‘C’ items. These are typically mid range in inventory value and order frequency.
‘A Classification’ items are marginally important. Typically, very low order frequency and high inventory value. These items are usually stocked with very low quantities or not at all due to the high carrying costs associated with the stock levels.

Following are some of the advantages of ABC Inventory management system:
1. Reduction in investment or working capital requirements.
2. Strict control over materials of high value.
3. Minimum storage costs.
4. Saving in time.
5. Economical since equal time and labour is not required for all types of inventories.
Some of the disadvantages of ABC system can be stated as follows:
1. Proper standardization of materials in the store is required.
2. It requires a good system of coding of materials.
3. Sometimes the system ignore factors other than value of the product. The distinction is important.
4. If a business has too many items in inventories, it becomes a tiresome task to categorize them.
Thus, ABC system works in a manner to provide maximum attention to high value items in the inventory that requires cirtical care. It sets the priorities and thus provide a logical base for managing the inventory effectively and efficiently.