in this video you are going to learn abc analysis as the size of the industry increases the number of inventory to be purchased and then to be taken care of also increases purchase and control items in bulk at a time and much before their use irrespective of their usage value price involves a lot of money and effort therefore it is uneconomical one of the optimal techniques helping managers to optimize the inventory levels is abc analysis abc analysis helps to segregate the inventories from one another and tells how much valued the item is and controls it to what extent steps involved in abc analysis 1. identify all the inventories used in the industry 2. list all the items as per their value 3. count the number of high valued medium valued and low valued inventories 4. find the percentage of high medium and low valued inventories high valued inventories normally contribute 70 or so of the total inventory cost and medium and low value items 20 and 10 respectively 5. a graph can be plotted between the percentage of inventory and the percentage of total inventory cost it can be seen that 70 of the total inventory cost is against 10 percent of the total inventory called a items 20 against 20 of the inventory called b items and 10 against the bulk that is 70 of the inventory called c items abc analysis provides the following information number one ay items are highly valued but are few they need careful and close inventory control such items should be thought of in advance and purchased well in time a detailed record of their receipt and issues should be kept and provide proper handling and storage facilities for them such items being costly are purchased in small quantities often and involves a little risk of non-availability a items account for 70 to 80 percent of the total inventory cost and they constitute 10 of the total inventory number two b items need moderate control they are more important than c items they are purchased on the basis of past requirements and a procurement order is placed as soon as the quantity touches reorder point these inventories being less costly a safety stock of up to three months may be kept the inventories also require careful storage and handling but are not as intensive as for a inventories the items generally account for 20 to 15 percent of the total inventory cost and constitute about 15 to 20 percent of the total items 3. c items are low valued but maximum numbers of items they do not require any control these are the least important items like clips pins washers etc they are reordered just before they finish future requirements of such items are never calculated and a 2-bin system is sufficient to hint procurement c items generally account for 10 to 15 percent of total inventory cost and they constitute about 75 percent of total items if you want to read in details or download the pdf go through the link in the description like the video so that youtube recommends this video to other people like you and please don't forget to subscribe to education leaves