I have to say, I don't understand what the pictorial is saying. I think some words could help a lot here.

DrD

ABC IS ALWAYS BETTER CONTROL

IT CAN APPLIED IN ANY ORGANIZATION TO PROCURE ITEMS FROM STATIONARY LIKE  A PIN TO A BIG MACHINARY EQUIPMENT.

Always Better Control sounds more like an advertising slogan than an actual description of a process. It tells nothing at all about how the process works, why it is better, or anything to make another person believe it is really better. Poor name choice!

Also, I still have no idea what the graphic is showing. This is not a very good post when so very much clarification is required.

The first step in determining an inventory situation is to use a technique called ABC analysis. It is an inventory control method based upon a statistical principle discovered by a 19th century economist, Vilfredo Pareto. He observed that a small number of situations in a population would often dominate the results achieved. Therefore, controlling the vital few would go a long way to controlling the whole. This observation is known as the “Management Principle of Materiality” and is recognized today as Pareto’s Law.

When ABC analysis is applied to an inventory situation, it determines the importance of items and the level of controls placed on the item. By dividing a company’s inventory into different classifications– A, B, C; managers can focus on the items that account for the majority of the inventory. The adaptation of Pareto’s Law of the vital few and trivial many follows a pattern:

• A inventory accounts for about 20% of the items and 80% of the dollar usage
• B inventory accounts for about 30% of the items and 15% of the dollar usage
• C inventory accounts for about 50% of the items and 5% of the dollar usage
•                 
• ‘A’ items have tighter controls on inventory records and more frequent reviews of forecasting, demand requirements, order quantities, safety stocks, and cycle counts.
• ‘B’ items have similar controls to ‘A’ items but reviews are less frequent.
• ‘C’ items have the simplest controls. They are only important if there is a shortage of one of them. Thus, ‘C’ items can be ordered in larger quantities and have higher safety stocks.

  ABC analysis puts emphasis on “where the value is”. By focusing efforts on higher value inventory, a company can assign proper resources to attain the optimum inventory levels, reducing inventory costs, and ensuring customers’ needs are met.

Thx @umama for the wonderful explanation

test comment

Very clearly explaned by umama, thank you for it. Percentages of allocation may change based on company discretion." A" class items are selected by auditors every time they audit. Keep strong track of it will be a calm environment in stores else will be treated as hanky panky or some thing a wrong management.

Most numbers consumed may be C class inventory items during the period are another track items even if they are less cost.

ABC analysis helps to know the stock level of inventory and helps to reduce dead money

You can  enter into screen: ABC analysis wizard from the following steps: Microsoft dynamics GP menu  >>> Tools >>> Routines >>> Inventory >>> Item ABC analysis  . This screen will help you to make analysis on any item  also  you can  use any way that you want.