ABC System of Inventory Control

The ABC system is a widely used classification technique to identify various items of inventory for purposes of inventory control. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep more rigorous control on items that are most costly and/or slowest turning while items that are less expensive should be given less control effort.

On the basis of the cost involved the various inventory items are according to this system, categorised into three classes: A, B and C. The items included in group A involve the largest investment. Therefore, inventory control should be the most rigorous and intensive and the most sophisticated inventory control techniques should be applied to these items. The C group consists of items of inventory which involve relatively small investments although the number of items is fairly large. These items warrant the minimum attention. The B group stands midway. It deserves less attention than A but more than C. It can be controlled by employing less sophisticated techniques.