ABC analysis is an inventory categorization method which consists in dividing items into three or more different categories (A, B, C)
This method aims to draw managers’ attention on the critical few (A-items) not on the trivial many (C-items) based on Praeto's 80-20 principle : 20% of items accounts for 80% of firms expenditure
ABC analysis groups items that will have a significant impact on overall inventory cost, while also identifying different categories of stock that will require different management and controls
- Create ABC classes to identify the value groupings to which your items belong.
- You can define these classes using your own terminology. For example, you might define classes A, B, and C, and later assign your items of highest rank to the A class, those of lower rank to the B class, and those of lowest rank to the C class.
- You can add to the list of classes you have already defined.