Inventory Management 101: ABC Classification+Statistical Analisys and Pareto Analysis
ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C in descending value. The items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value. Inventory control and management are critical for a business.
It´s pivotal in any company with inventory to keep an updated ABC ranking and have the proper trained personal to keep it going. It´s the first step, and a key one, to start managing your inventories in the right direction for both service level and working capital.
According to Pareto, 80% of the outcomes are allocated in only 20% of the inouts, that means regarding inventory that category A will absorb 80% of the inventory values and most likely will be about only 20% of the invenrtory categories. Summarizinf ABC clasification means:
A: 80% of inventory value and consumption (20% of inventory items).
The ratios could be adjunsted if needed according to the organization.