ABC analysis
ABC analysis, also known as the Pareto principle or the 80/20 rule, is a widely-used method for inventory management and control. This technique categorizes items based on their importance to the overall inventory, allowing companies to prioritize resources and focus on the most valuable items.
In ABC analysis, items are classified into three groups:
- A-items: High-value items that account for a small percentage of total inventory, but make up a significant portion of the overall inventory value. These items require close monitoring and tight control.
- B-items: Medium-value items that represent a moderate percentage of total inventory and overall value. These items require a balanced approach to inventory management.
- C-items: Low-value items that make up a large percentage of total inventory but contribute the least to the overall inventory value. These items can be managed with less stringent control measures.
The main objective of ABC analysis is to optimize inventory management and reduce costs. By identifying and prioritizing A-items, companies can allocate resources more efficiently, while also minimizing stockouts and excess inventory.
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