ABC Plan
ABC Plan is used to control the inventory by applying security measures or controls on each category. Through this technique management is able to apply measures according to the value of item i-e high or tight security measures on high value items and vice versa.
ABC Plan is also known as Material Control by Exception or Material Selective control model
Category Of Material
The three categories of material, on the basis of which security measures or controls are applied on the material or inventory, are as fallows
- CLASS A MATERIAL
- CLASS B MATERIAL
- CLASS C MATERIAL
Class A ITEMS
- High value in total inventory
- Low in quantity
- Restrict controls are applied
Class b items
- Average value in total inventory
- Average in quantity
- Moderate controls are applied
Class c items
- Low value in total inventory
- High in quantity
- Loose controls
STEPS TO SOLVE THE QUESTION
STEP 1: Determine/ Estimate annual usage or annual consumption of each item
STEP 2: Determine/ Estimate per unit cost of each item
STEP 3: Determine annual usage/consumption value or cost of each item
STEP 4: Categorize items as A, B, C on the basis of total annual consumption cost/usage value
STEP 5: Compute for each item its percentage
%age = (Number of units of each item ÷ Total units of all items) × 100
%age in value = (Total value of each item ÷ Total value of all the Material) × 100
STEP 6: Plot the graph by taking percentage of total cost on x-axis and percentage of total usage on y-axis