Question
Download Solution PDFIn ABC classification system of inventory management, _______ group items have low level of safety stock.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFExplanation:
ABC analysis is also known as Always Better Control analysis. This is also known as the principal of the Law of Vital Few and Trivial Many.
It is an analysis based on levels of importance. It is also a proportional value analysis.
Class A:
- Only 10% in the number
- Accounts for 75% of the annual inventory usage value
- It requires high attention for maintenance
- Needs continuous rigorous control
- Lower safety stocks
- Fixed-interval inventory control system might be used
Class B:
- Next 20% in the number
- Accounts for 15% of the annual inventory usage value
- Need relaxed control (periodic review)
- It requires high attention for maintenance
Class C:
- Next 70% in the number
- Accounts for 10% of the annual inventory usage value
- Can be managed in a more casual manner
- Fixed-order inventory control system might be used
Annual Usage Value = Annual Usage rate × Unit Cost
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