ABC Classification of Materials:

Owing to the large number of materials while production at many manufacturing plants, needs of classifying materials arises. This can be achieved on the basis of annual usage. There are lot many schemes for classifying materials, among them one such scheme is ABC method. It is based on the idea that only a small percentage of materials represent the majority of inventory value.

If classification of items in inventory is tabulated on the basis of annual usage, the list illustrated that a small number of items account for a great usage value and that a large number of items account for a small usage value. Example in Table illustrates this relationship.

Table: Annual Usage of Inventory by Value

The ABC scheme divides this list in three categories by value: A items constitute roughly the top 15% of the items, B items the next 35%, and C items the last 50%. From observation, it seems that the list in Table can be meaningfully grouped with A including 20%, B including 30%, and C including 50%.