The term inventory is defined as the itemized list of goods with their estimated
worth specifically annual account of stock taken in any business. All the materials
,parts, suppliers, expenses and in process or finished products recorded on the
books by an organization and kept in its stocks, warehouses or plant for some
period of time.
Inventory control is the technique of maintaining the size of the inventory at some
desired level keeping in view the best economic interest of an organization.
ABC analysis is derived from the term “The Pareto Principle” named after an
Italian economist Vilfredo Pareto, also called 80/20 rule. This principle suggests
that 80% of the total output is generated only by 20% of the valuable efforts.
When it comes to stock or inventory management, ABC analysis typically
segregates inventory into three categories based on its revenue and control
measures required: A is 20% of items with 80% of total revenue and hence asks
for tight control; B is 30% items with 15% revenue; whereas ‘C’ is 50% of the
things with least 5% revenue and hence treated as most liberal.
Any particular company’s numbers may be different but have a similar
distinguishable pattern. This analysis aims to draw managers’ attention on the
critical few (A-items) and not on the trivial many (C-items) and focusing its
inventory control efforts on those particular items where it will have the most