What is an ABC system?

Answer 1

while acquisition materials,economy in purchase is the striking point to consider.In order to achieve economy,all the item of stocks are classified into three classes - 'A','B','C'. 'A' indicates a small number of items which requires heavy investment, 'C' indicates a large number of items for which total investment requires is not much and 'B' indicates the items between 'A' and 'C' i.e., number of items in 'B' is less than that in 'C', but more than that in 'A' and the total investment is less than that in 'A' but more than that in 'C'.

since the investment in 'C' items is not large the stock may be acquired for a year. this will save the cost of placing orders and receiving materials. In case of 'B' items, orders may be placed as and when the stock reaches the ordering level .If the stock is proportionately low,order for 4-5 month's consumption may be placed .so far as 'A' items are concerned, is is necessary to work out the exact quantity of each order economically justified (known as economic order quantity or EOQ ). this is how the purchase of material us selectivity controlled . It is obvious that ,the stock 'A' items should ne subject to more cautious control than that of 'B' ITEMS and 'c' items . The system of classification and control of material indicated above is called ABC system.