Operations and Supply Chain Management The Core

374 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
ABC inventory
classification
Divides inventory
into dollar volume
categories that
map into strategies
appropriate for the
category.
future) and is certainly true in inventory systems (where a few items account for the bulk
of our investment).
Any inventory system must specify when an order is to be placed for an item and how
many units to order. Most inventory control situations involve so many items that it is not
practical to model and give thorough treatment to each item. To get around this problem,
the ABC inventory classification scheme divides inventory items into three groupings:
high dollar volume (A), moderate dollar volume (B), and low dollar volume (C). Dollar
volume is a measure of importance; an item low in cost but high in volume can be more
important than a high-cost item with low volume.
ABC Classification
If the annual usage of items in inventory is listed according to dollar volume, generally, the
list shows that a small number of items account for a large dollar volume and that a large number
of items account for a small dollar volume. Exhibit 11.11A illustrates the relationship.
exhibit 11.11
A. Annual Usage of Inventory by Value
ITEM NUMBER ANNUAL DOLLAR USAGE PERCENTAGE OF TOTAL VALUE
22 $ 95,000 40.69%
68 75,000 32.13
27 25,000 10.71
03 15,000 6.43
82 13,000 5.57
54 7,500 3.21
36 1,500 0.64
19 800 0.34
23 425 0.18
41 225 0.10
$233,450 100.00%
B. ABC Grouping of Inventory Items
CLASSIFICATION ITEM NUMBER ANNUAL DOLLAR USAGE PERCENTAGE OF TOTAL
A 22, 68 $170,000 72.8%
B 27, 03, 82 53,000 22.7
C 54, 36, 19, 23, 41 10,450 4.5
$233,450 100.0%
C. ABC Inventory Classification (inventory value for each group versus the group’s
portion of the total list)
100
80
Percentage
of total
inventory
value
60
40
20
0
A items
B items
C items
20 40 60 80 100
Percentage of total list of different stock items