ABC Classification / Analysis

  ABC classification or ABC analysis is a technique used in materials management.  The ABC represents the different categories of inventory in your system and indicates the level of control each category requires.  The Apics Dictionary defines the categories of the ABC system as:

1. A = The A group usually represents 10 percent to 20 percent by the number of items and 50 percent to 70 percent by projected dollar volume.
2. B = The B grouping usually represents about 20 percent of the items and about 20 percent of the dollar volume.
3. C = The C grouping usually contains 60 percent to 70 percent of the items and represents about 10 percent to 30 percent of the dollar volume.  

  It is important to note that there is no fixed numbers for each category.  Each organization should customize their classification system based on a pareto analysis.  

Discussion:

1. What benefits can you see in applying tighter or looser controls to inventory management items?