Question

The Operations Manager likes your answer and thanks you for the analyses. He then asks you to do the ABC analysis. The manager adds that the company typically does ABC analysis such that the A segment (all A items togehter) accounts for at least 70% of value, B segment for at least 15% and C segment for at most 10% of value.

SKU Number of Items Value ($/item) Weight (lb/item)
A 220 67 52
B 225 3 59
C 245 21 60
D 145 7 48
E 230 26 42
F 240 83 49
Imagine, you want to first do the ABC analysis based on SKU value.

What percentage of the total number of items is accounted for by SKUs in segment B?

What percentage of the total value of inventory is accounted for by SKUs in segment B?

What percentage of the total weight of inventory is accounted for by SKUs in segment B?

Answer 1

Requirements are computed below.

Explanation:

For ABC analysis:

Step1: Calculate the total value of each item.

SKU Number of Items Value ($/item) Value of the product ($)

A 220 67 14740

B 225 3 675

C 245 21 5145

D 145 7 1015

E 230 26 5980

F 240 83 19920

Step2: Reorganize the table on the basis of total value in descending order, & calculate % share of total value of investment and cumulative % share of total value of investment.

SKU Number of Items Value ($/item) Value of the product ($) % of Total value Cumulative % of total value Segment

SKU Number of Items Value ($/item) Value of the product ($) % of Total value Cumulative % of total value Segment

F 240 83 19920 41.96 41.96 A

A 220 67 14740 31.05 73.01 A

E 230 26 5980 12.60 85.60 B

C 245 21 5145 10.84 96.44 B

D 145 7 1015 2.14 98.58 C

B 225 3 675 1.42 100.00 C

----------

% of total number of items in segment B = (230+245)/1305 = 36.4%

% of total value of inventory in segment B = (12.6 + 10.4)/100 = 23.43%

% of the total weight of inventory in segment B = (9660+14700)/67795 = 35.93%

SKU Number of Items Value ($/item) Weight (lb/item) Total weight

A 220 67 52 11440

B 225 3 59 13275

C 245 21 60 14700

D 145 7 48 6960

E 230 26 42 9660

F 240 83 49 11760