See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/314129134

ABC Analysis in the Hospitality Sector: a Case Study

Article · January 2017

CITATIONS READS

0 3,522

2 authors, including:

Nand Kumar
Delhi Technological University
36 PUBLICATIONS   55 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Efficiency analysis banks in India. View project

Dates Extended for Full manuscript Submission at ICAPIE 2016, Delhi, India View project

All content following this page was uploaded by Nand Kumar on 01 March 2017.

The user has requested enhancement of the downloaded file.

 Available online at www.ijapie.org Special Issue on
International Journal of Advanced
Production and Industrial Engineering OPERATIONS
&
IJAPIE-SI-OSCM 701 (2017) 01–03 SUPPLY CHAIN
MANAGEMENT

ABC Analysis in the Hospitality Sector: a Case Study

Nand Kumar1, Rohan Soni2
(Delhi Technological University, Delhi, India )
Email: nandkumar@dce.ac.in

Abstract : The main objectives of this study is to analyze the inventory management techniques employed and get possible
solutions to overcome the inefficiency of the inventory management. ABC analysis is used in the study to analyze the data of the XYZ
hotel. It is found that ABC analysis is helpful in determining the value of the stocks present in the inventory. Through this
classification, the hotel identifies the hot spots, and separates them from the rest of the items that have lower sales. The study was
found to be beneficial for the hospitality industry to competently manage their inventory levels and keep a track of the items that have
a significant impact.

Keywords: Inventory, Inventory management, Hospitality industry, ABC analysis

INTRODUCTION LITERATURE REVIEW

The study is to determine the appropriate inventory levels The company purchases different types of items from
that should be kept in order to reduce the costs of inventory different suppliers. There are several types of inventory
and maintain the required inventory in the hospitality control analysis techniques such as ABC, XYZ, FSN, VED,
industry. HML etc. The concept of ABC model can be used to form a
The inventory management involves supervising and rational inventory policy which would help in the reduction
controlling of the ordering, storage and uses of components of the minimization of inventory costs, including storage and
that the company needs for sale in order to minimize the manpower costs.
inventory cost and to guarantee smooth process. The process of ABC analysis classifies inventory items into
Organizations maintain inventories because it is almost A, B, or C categories based on so-called annual dollar usage.
impossible to forecast the demand and usage needs precisely. Annual dollar usage is calculated by multiplying the dollar
Inventories that are mismanaged can create significant value per unit by the annual usage rate [2]. The ABC analysis
financial problems for a business. follows a simple rule of thumb: “vital few and trivial
An inventory is an important asset of a company and is an many”[3].
integral part of the operations. A firm must have an optimum
level of inventories. Several companies have adopted, The class „A‟ items are the ones that are relatively smaller in
embraced the methods and realized the impact of the same. number, but account for the greatest amount of dollar annual
There are different categories of inventories. The first is the usage. The class „C‟ items are the ones which are relatively
raw materials, the units that have been purchased and stored large in number, but they make up a rather small amount of
for the future. The second category is the WIP or work in annual dollar usage. The items in the class „B‟ are defined as
progress goods, which are in the intermediate stages of those items between the classes „A‟ and „B‟.
productions and lastly, the finished goods which are ready to
be purchased by the consumer. The ABC analysis offers a tool for identifying items that will
A company needs to know the precise number of items on have a significant impact on overall inventory cost, while
their inventories in order to place orders or control losses. also offering a tool for the identification of different
There are several techniques which are employed depending categories of stock that will require different management
on type of business. and controls techniques. [4]. The ABC analysis is very useful
An accurate accounting system with up-to-date records is as it clearly suggests that the inventories are not of equal
essential. Companies use perpetual system to maintain values. [5].
accurate inventory records, wherein a continuous record of
changes in inventory is maintained. Organizations that It is seen from the above categorization that class A items are
capitalize on inventory and procurement functions as means the ones with higher consumption, class B items are the ones
of achieving competitive advantages often resulting in with moderate consumption and the class C items are the
increased profitability and increased market responsiveness. ones with low consumption values. It has been seen that the
[1] items that belong to category C are not paid much attention

| IJAPIE | ISSN: 2455–8419 | www.ijapie.org | Operations & SCM | Sp Issue. | 2017 | 1 |

 Nand Kumar and Rohan Soni
International Journal of Advanced Production and Industrial Engineering

and more focus should be on these items so that their sales this is assumed to be 7 days for all the stocks except
are increased. for imported liquor which has the lead time at 15
days.
 Class „A‟ items account for the 70% of the total b) No theft of stock is possible due to the stringent
annual consumption value and 10%-15% of all the policies of the XYZ hotel including periodic
inventory items. tracking of the items present in the inventory owing
 Class „B‟ items account for the 20% of the total to the use of fully automated inventory system and
annual consumption value and 15%-20% of all the perpetual inventory.
inventory items. c) Possibility of a stock out is nil on the account of the
 Class „C‟ items account for the 10% of the total use of the software SAP which alerts the operator if
annual consumption value and 70%-75% of all the the minimum stock level is breached.
inventory items.

The cutoffs for the ABC analysis can be modified by the

management to classify the inventory. ABC analysis helps in
ABC
the realizing the significance of each item of inventory in Classification
terms of the value of each item. It implies that a small portion
of the stock contributes to maximum revenue. of Liquor
RESEARCH METHODOLOGY
The study is focused at the hospitality industry. Three years
data was extracted to study the trends and patterns of the 10%
inventory of the hotel. ABC analysis and Pareto analysis was 15% Class A
also used to identify the top items for the different categories.
Implementation of ABC analysis involves: Class B
1. Preparation of list of items and their annual 75%
Class C
consumption value.
2. Arrangement of the items in the descending order of
their annual usage in value.
3. Calculation of the percentage of the share of each
item.
4. Separation of items into A, B, and C categories.

Method of data collection:

i. The relevant data needed for the analysis was
obtained by the sales reports; purchasing reports ABC
generated by the finance department of the company
collected using the SAP SE(System Analyses and Classification
Programme) software. The data was extracted from
the SAP SE software by suing certain T-codes for of Soft
the different materials.
ii. Interviews with the personnel in the stores, and the Beverages
managers in the purchase and finance departments
iii. Background knowledge information was obtained
by review of the related literature on the ABC 17%
analysis. Class A

CASE ILLUSTRATION 22% Class B

61%
The inventory is bifurcated into 5 types: Class C
1. Liquor
2. Food
3. Soft beverages
4. Tobacco
5. General and stationery items

We have considered only the “liquor”, “soft beverages” and

the “tobacco” inventory data.
The following details were obtained:
a) The lead time of the stocks is highly variable
according to the demand but to be on a safer side,

| IJAPIE | ISSN: 2455–8419 | www.ijapie.org | Operations & SCM | Sp Issue. | 2017 | 2 |

 Nand Kumar and Rohan Soni
International Journal of Advanced Production and Industrial Engineering

to reduce the class „C‟ item stock in the inventory by moving

ABC the class „C‟ items by giving it away in complementary or in
hampers. In order to push the recognized items, promotional
Classification events and activities can be conducted

of Tobacco REFERENCES

[1] M. Victoire (2015). Inventory Management Techniques and its

contribution on better management of manufacturing companies in
14% 17% Rwanda. European Journal of Academic Essays 2(6): 49-58.
[2] M.A. Cohen & R. Ernst, (1988). Multi-item classification and
Class A generic inventory stock control policies. Production and Inventory
Class B Management Journal, 29(3), 6–8.
69% [3] Yu, Min-Chun (2010). Multi-criteria ABC analysis using
Class C artificial –intelligence- based classification techniques. Expert
Systems with Applications.
[4] Vollmann, T. E., (2004). Manufacturing planning and control
systems for supply chain management. McGraw-Hill Education.
[5] Lun, Lai, Cheng (2010) Shipping and Logistics Management,
Springer, p. 158
[6] Nadkarni, R. & Ghewari, A. An Inventory Control using ABC
Analysis and FSN Analysis. International Journal of Engineering,
Business and Enterprise Applications.
CONCLUSIONS [7] S. Mitra, M.S. Reddy, K. Prince. Inventory Control using FSN
The inventory of liquor is higher than the minimum level that Analysis – A Case Study on a Manufacturing Industry. International
Journal of Innovative Science, Engineering & Technology [April
should be maintained. Brand strength of liquor is high and no
2015 , Vol. 2 Issue 4
new brand introduction is necessary. After the ABC analysis [8] J.B. Hmida, S. Parekh, J. Lee. Integrated Inventory Ranking
of the data obtained, it was found that the Hotel maintained System for Oilfield Equipment Industry. Journal of Industrial
the required inventory for the class „A‟ items. However, the Engineering and Management.
level of inventory of the class „C‟ items is higher than the
optimum level for the same category. Steps have been taken

| IJAPIE | ISSN: 2455–8419 | www.ijapie.org | Operations & SCM | Sp Issue. | 2017 | 3 |

View publication stats