The ______ concept is derived from the Pareto’s 80/20 rule curve. 

Explanation:

ABC Analysis Derived from Pareto's 80/20 Rule:

• ABC analysis is a method of categorizing inventory or other items into three distinct groups (A, B, and C) based on their importance and contribution to overall value. This concept is derived from the Pareto Principle or 80/20 rule, which states that 80% of consequences come from 20% of causes. In inventory management, this translates to the idea that a small percentage of items (Category A) accounts for the majority of the value or impact, while the majority of items (Categories B and C) contribute less significantly.

ABC analysis divides inventory into three categories:

• Category A: These are high-value items that contribute the most to the overall value. Typically, this category represents around 20% of the total items but accounts for approximately 80% of the total value.
• Category B: These are medium-value items that contribute moderately to the overall value. They usually represent around 30% of the items and account for 15% of the total value.
• Category C: These are low-value items that contribute the least to the overall value. This category often represents around 50% of the items but accounts for only 5% of the total value.

Steps to Perform ABC Analysis:

1. List all items and their respective values (e.g., cost, revenue, or impact).
2. Rank the items in descending order based on their values.
3. Calculate the cumulative percentage of the total value and the cumulative percentage of the total items.
4. Divide the items into categories (A, B, and C) based on their contribution to the cumulative value.

Benefits of ABC Analysis:

• Helps prioritize resources and efforts for high-value items.
• Enables better inventory management by focusing on critical items.
• Improves decision-making and operational efficiency.
• Reduces costs and waste by optimizing the management of lower-value items.

Applications of ABC Analysis:

• Inventory management in manufacturing, retail, and logistics.
• Cost control and budgeting.
• Supplier management and procurement strategies.
• Focus on high-value customers in marketing and sales.