Inventory Management

• 2025-01-08
• |

Inventory Management

ABC Classification ABC classification is a method of inventory management that categorizes items or products into three groups (A, B, and C) based on their importance and relative value to the organization. This approach helps prioritize resources and focus management efforts on the most impactful items. Categories in ABC Classification 1. Category A (Critical Items): Represents a small percentage of inventory (10–20%) but accounts for the majority of value (70–80%). Requires close monitoring and frequent management. Examples: High-cost products or essential raw materials. 2. Category B (Moderate Importance Items): Makes up a moderate portion of inventory (20–30%) and value (15–25%). Needs periodic monitoring. Examples: Items with medium-level significance for production or sales. 3. Category C (Low Importance Items): Constitutes the largest portion of inventory (50–70%) but contributes the least value (5–10%). Requires minimal management and low storage costs. Examples: Low-use materials or inexpensive tools. Steps to Implement ABC Classification 1. Data Collection: List all inventory items and calculate their total value (unit cost × quantity). 2. Cumulative Percentage Calculation: Sort items by value (highest to lowest) and calculate cumulative percentages. 3. Categorization: Divide items into A, B, and C groups based on cumulative percentages. Benefits of ABC Classification Focuses resources on the most critical items. Reduces costs for managing low-value inventory. Enhances efficiency in inventory control.