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in Entrepreneurship by (57.4k points)

Ram was very thrilled with his new job. He was placed in a small factory manufacturing door knobs as a stock keeper. After a few days, while taking stock he understood that nuts and various small parts constituted majority of the cost of production. After some time, the firm went into a loss and the owner decided to look into the various factors that could have constituted the loss. Ram expressed his concern that inventory was not properly maintained and that there are various techniques which are involved and if followed properly the company will not be in a loss. The owner agreed to the suggestion. He also decided to take help from some specialized government institution initiate steps for technological up gradation, and modernization of existing units.

1. What technique was suggested by Ram? Explain it.

2. Which specialized financial institution is the owner thinking of approaching and state any one of its objectives?

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ABC Analysis 

1. The inventory control technique known as ABC analysis builds on Pareto’s Principle. In ABC analysis, a company reviews its inventory and sorts all SKUs into three categories, called ‘A’, ‘B’ and ‘C’ items. The typical breakdown might look like this: ‘A’ inventory: 20 per cent of SKUs, 80 per cent of value. ‘B’ inventory: 30 per cent of SKUs, 15 per cent of value. ‘C’ inventory: 50 per cent of SKUs, 5 per cent of value. A particular company’s numbers may be different, hut the pattern would be similar we should be able to discern a similar kind of pattern. 

2. SIDBI (Small Industries Development Bank of India) Objectives of SIDBI are:Initiate steps for technological up gradation, and/or modernization of existing units.

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