PUBLIC HEALTH & COMMUNITY MEDICINE

ABC Analysis in material management (lectures)- Mrs Sachi Regmi

Introduction

• Tools available which allow a simultaneous scheduling of all resource types including materials
• An inventory classification scheme that ranks items based on past (or projected) annual usage times cost or price
• with A items accounting for the top 10-20% in terms of number of items and 60-70% of dollar volume
• B items the next 20-25% of items and 20-30% of dollar volume, and
• C items as the bottom 60-70% of items and only 15-30% of the dollar volume.
• A Class D is sometimes used for obsolete or non-moving items.
• ABC categories are often used in specifying the amount of attention and control paid to specific items, (with the tightest control over A items)
• ABC-analysis is a method originating from material requirements planning,
• With the results of ABC-analysis materials with a higher value can be disposed order-related while cheap materials are disposed consumption driven.
• Many companies have to deal with a high number of different materials which have different lifecycles.
• Thus their portion in the overall amount and the overall value of materials is changing over time.
• While this is known, especially smaller companies do not have enough staff capacities to keep track of these changes – even if they can make use of interactive ABC-analysis tools.

• We perform an ABC analysis to classify objects according to specific criteria or performance measures. Each object is assigned one of the following three indicators:

A: important
B: less important
C: relatively unimportant

 
Problem
• For material disposal it is important to know whether a high value of a material position is caused by a large amount at a low price or by a small amount with a high price. This information cannot be gained by a classical ABC-analysis
• for material disposal not only the value of a material position is important but also the price of one unit.
• It is possible to apply ABC-analysis to unit prices rather than values.
• To distinguish between the to approaches the application of ABC-analysis to unit prices shall be called 123-analysis
• A combination of ABC- and 123-analysis delivers a two-dimensional classification for each material position
• using ABC-analysis and 123-analysis are important steps towards a better material disposal. Since it is possible to chose methods of material disposal more adequately based on their results and thus reduce the computing performance needed to run Advanced Planning and Scheduling (APS) tools.