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In materials management, ABC analysis is an inventory categorisation technique which divides inventory into three categories: 'A' items, with very tight control and accurate records, 'B' items, less tightly controlled and with moderate records, and 'C' items, with the simplest controls possible and minimal records.
Following strong initial uptake, ABC lost ground in the 1990s compared to alternative metrics, such as Kaplan's balanced scorecard and economic value added.An independent 2008 report concluded that manually driven ABC was an inefficient use of resources: it was expensive and difficult to implement for small gains, and a poor value, and that alternative methods should be used. [4]
ABC analysis (also known as Pareto analysis) is a method of classifying inventory items based on their contribution to total sales revenue. [ citation needed ] This can be used to prioritize inventory management efforts and ensure that businesses are focusing on the most important items.
Inventory optimization refers to the techniques used by businesses to improve their oversight, control and management of inventory size and location across their extended supply network. [1] It has been observed within operations research that "every company has the challenge of matching its supply volume to customer demand.
For example, if inventory exists in location A, B, and C and someone physically moves C to D without transaction, the inventory control system will continue to show inventory in A, B, and C. At the time of cycle count, the control system will direct the counter to A, B, and C where they will find C missing.
Traditional standard costing (TSC), used in cost accounting, dates back to the 1920s and is a central method in management accounting practiced today because it is used for financial statement reporting for the valuation of income statement and balance sheet line items such as cost of goods sold (COGS) and inventory valuation.
Inventory analysis is one of the branches of Operation Research which deals in studying and understanding the stock/product mix combined with the knowledge of the demand for stock/product. It is the technique to determine the optimum level of inventory for a firm.
All units produced are sold (there is no ending finished goods inventory). When a company sells more than one type of product, the product mix (the ratio of each product to total sales) will remain constant. The components of CVP analysis are: Level or volume of activity. Unit selling prices; Variable cost per unit; Total fixed costs