Question

2-page report describing how an international company uses one of the Inventory Management techniques.

No plagiarism

accounting cost and management accounting

Answer 1

is a technique that’s based on putting products into categories in order of importance, with A being the most valuable and C being the least. Not all products are of equal value and more attention should be paid to more popular products.

Although there are no hard-and-fast rules, ABC analysis leans on annual consumption units, inventory value, and cost significance. Categories typically look something like:

Category A

Items of high value (70%)
and small in number (10%)

Category B

Items of moderate value (20%)
and moderate in number (20%)

Category C

Items of small value (10%)
and large in number (70%)

The key is to operate each category separately, particularly when selective control, allocation of funds, and human resources are required.

Pros of ABC inventory management

• Aids demand forecasting by analyzing a product’s popularity over time
• Allows for better time management and resource allocation
• Helps determine a tiered customer service approach
• Enables inventory accuracy
• Fosters strategic pricing

Cons of ABC inventory management

• Could ignore products that are just starting to trend upwards
• Often conflicts with other inventory strategies
• Requires time and human resources