ABC inventory classification is one of the most fundamental concepts of inventory management. Many organizations use ABC inventory classification to assist with inventory management, sales of inventory and purchasing of inventory. This classification system works by placing inventory into different categories.
As implied those categories are typically defined by A level items, B level items and C level items or ABC items as the name suggests. While there are many different classifications for the categories, the most common one used by organizations is based on annual dollar volume. Keep in mind that every organization should decide what value may be added by different types of classification. Some other types of classification are:
Once an item has been classified a criteria of management is then established for each of the different classes. For example:
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.
ABC Classification in Google Sheets
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