ABC System of Inventory Control
Inventories include raw material inventory, work-in process inventory and finished goods inventory. The goal of effective inventory management is to minimize the total costs – direct and indirect – that are associated with holding inventories. However, the importance of inventory management to the company depends upon the extent of investment in inventory. It is industry-specific.
In the case of a manufacturing company of reasonable size the number of items of inventory runs into hundreds, if not more. From the point of view of monitoring information for inventory control, it becomes extremely difficult to consider each one of these items. The ABC analysis comes in quite handy and enables the management to concentrate attention and keep a close watch on a relatively less number of items which account for a high percentage of the value of annual usage of all items of inventory.… Read the rest