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Sem 5 Prep
← OperationsABC classification

Formulas for this chapter

Annual value

Annual value = annual demand (units) x unit cost

The first step of every ABC analysis. Compute it for every item before sorting.

annual demand
Units consumed or sold in a year
unit cost
Cost of one unit

Cumulative percentage of value

Cumulative % = (cumulative annual value / total annual value) x 100

After sorting descending. The cut points between A, B and C are read off this column.

cumulative annual value
Running total down the sorted list
total annual value
Sum across all items

Typical class shares

A: 10-20 % of items, 60-70 % of value B: the middle C: 50-60 % of items, 10-15 % of value

As a guide when cutting the sorted list. Follow the bend in the Pareto curve and state the percentages you used.

% of items
Share of the number of line items
% of value
Share of total annual value
Step 1 of 18
The ideaTheory

Not everything deserves the same care

A hospital store holds 4,000 line items. Some are pacemakers. Some are paper clips. Counting both every week is a waste of somebody's life.

A handful of items carry most of the money. Most items carry most of the paperwork. So spend your attention in proportion to the money, not in proportion to the item count.

That is requirement five from the inventory-fundamentals chapter, made operational.

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