Abc Analysis

ABC Analysis is an analysis that divides inventory into three groups. Group A is more important than group B, which is more important than group C. ( (Hanna, Render, & Stair, 2012)page 232)

The purpose of the ABC Analysis is to separate of the inventory items for an organization into three different groups that are labeled as A group, B group and C group based on the value of the individual inventory items. This method will assist managers in knowing which items will require much more focus and attention. This type of thinking will lend way to managers spending time on the higher priced items since they are the times that have the greater probability for cost savings. So basically each item is evaluated and then place in a group based on the value of the item (Hanna, Render, & Stair, 2012).

In speaking of group A, it is the group set aside for those large ticket items of inventory. These items normally make up the biggest portion of the inventory costs of an organization which would be around 70% of an organizations business in dollars. The next group which is group B would include those reasonably priced items of an organizations inventory and they would generally account for about 20% of the inventory items of an organization and about 20% of the organizations business in dollars. The items that are in the last group which is designated as group C would be the low ticket items of inventory. These items represent about 10% of the business in dollars. For these items, there would normally be a very simple inventory method put into place (Hanna, Render, & Stair, 2012).

When deciding to stock inventory, an organization should take into account the cost of stocking the high ticket items verses the cost of stocking the lower ticket items. However, they also do not need to overstock on the lower ticket items as it will also affect the holding costs of the organization (Hanna, Render, & Stair, 2012).

One example that I came across is when I went...