ABC classification

Inventory management is a crucial aspect of supply chain management. It helps to maintain a balance between supply and demand, reduces costs, and ensures customer satisfaction.

One of the techniques used in inventory management is ABC classification, which with inventory and operations can be optimized. The ABC classification is a categorization method based on the Pareto principle, also known as the 80/20 rule. This principle states that, in many cases, approximately 20% of the items contribute to 80% of the results. In the context of inventory management, this means that a small percentage of products usually accounts for most of the value or sales volume.

Not all products have the same value or importance to the organization and control measures must be based on that level of importance. The ABC classification framework helps to identify which items in your warehouse are the most important. Therefore, these items should consume most critical attention, management, and control.

Typically, the breakdown is as follows:

CATEGORY A
Small group of products (20%) is responsible for most of the revenue (80%).
They require close attention and control.

CATEGORY B
About 30% of products are responsible for 15% of sales.
They are in the middle ground in terms of relative importance.

CATEGORY C
About 50% of products are responsible for 5% of sales.
They are necessary despite having a low impact on the financial results.

These are some of the benefits ofthe ABC classification:
- Cost reduction
- Better control
- Improved demand forecasting
- Prioritization of resources

Pick to Light Systems will help you in the classification of the category A. If you want to know how, take a look at our solutions.