Describe what is meant by ABC analysis. What is the purpose of this inventory technique â?" provide an example. In your responses to other students, please identify strengths and weaknesses of their ABC analysis applied to their examples.
ABC analysis is a type of inventory control theory that helps to determine how much to order when there are different inventory values that a company must manage. ABC analysis is used to determine 'which items represent the greatest potential inventory cost ' (Render, Stair, Hanna, 2012) to better manage the inventory. The purpose is so that inventory that is of higher dollar value can be more carefully managed, since this is the area where the greatest potential savings are located.
To utilize ABC analysis, inventory is divided into three categories, A,B and C. Inventory that falls into category 'A' accounts for the biggest portion of the inventory costs for the company, typically more that 70 percent of the company's business in dollars, however, the quantity of items may be relatively small. This is an important category ...
This solution defines ABC analysis, and states the purpose for this inventory technique. It provides an example, as well as critiques other student's posting on the strengths and weaknesses of their examples. APA formatted references.