What is an ABC inventory analysis? The definitive guide
ABC classification correctly: where to start? The life of someone who works in the supply chain is not easy. Therefore, it is vital that you focus on what is important. But what is “the important thing”? What products should you pay attention to? Before delving into the topic of ABC analysis, imagine that you have an assortment made up of more than 10,000 references, more than 1,000 clients and hundreds of suppliers. For each of these references, you will have to determine an inventory strategy. For all of these SKUs, you must determine an inventory strategy. When should I order? How many should I order? What level of service should be given to each item? And many more! Life in the Supply Chain is not easy! Therefore, it is vitally important that you focus on the right things. But what are these things correct? What products should you focus your attention on? But, as you will see, there are many more questions... New call-to-action 25% of your articles contribute nothing According to classical Pareto analysis, 50% of the products create only 5% of the total margin.Of course, this is still 5% and cannot be ignored. But should we give these articles the same focus, investment, and importance as the top articles that actually make us money? What if we dive a little deeper? A completely different picture begins to emerge. In the first part of this article, we'll explore how you can identify your most important items to implement more effective inventory strategies. But first, let me explainABC analysis in inventory managementand how they work in practice. What is ABC analysis? To apply Pareto's laws to the supply chain, we usually Japan Telegram Number Data use the so-called ABC analysis. In essence, the stock system with ABC is the process of classifying stock by priority, based on certain criteria. With the information this analytical approach provides, we can identify significant opportunities to optimize inventory levels. This process helps supply chain teams reduce inventory carrying cost and free up working capital. But the most important thing is that a good ABC method should help increase sales volume by achieving better availability of the products most appreciated by customers.
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As a result, companies that take advantage of this approach operate more agilely and efficiently. When you're done, your inventory will typically be divided into three main categories (A, B, and C) based on their strategic importance: Category A: Products that are important and therefore require strict control. Category B : Products of lesser importance, but which should still be managed with a medium level of control. Category C: Products of minor importance and require loose control. In the previous chapter “ Introduction of New Items and Prevention of Inventory Obsolescence ”, we talked about the importance of the introduction of items. Also, how by doing it correctly, it contributes to reducing obsolescence. Continuing with assortment management, today we will talk about the classification of ABC/XYZ items. The name “ABC” suggests that there are only 3 classes. But, if you wanted, you could distinguish 10 classes or whatever.
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