[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”4.16″ global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row admin_label=”row” _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”auto” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||” theme_builder_area=”post_content”][et_pb_text ul_item_indent=”30px” admin_label=”Text” _builder_version=”4.22.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” global_colors_info=”{}” theme_builder_area=”post_content”]This article sheds light on the importance and practical application of ABC analysis in inventory control and management. Readers will learn about the categorization of items into A, B, and C groups, their implications for managing risk and optimizing sales, and the step-by-step process of conducting ABC analysis using an Excel spreadsheet.<\/p>\n
Key Takeaways:<\/strong><\/p>\n ABC analysis is an important technique when managing materials. It informs a number of supply chain functions including sourcing<\/a>, procuring, receiving, and inventory management. Simply put, ABC analysis is the categorization of items into three categories (A, B, and C) to determine levels of importance.<\/i><\/p>\n <\/p>\n Let’s break that down a little further. Category A items are regularly counted and tightly controlled, while Category B items are counted somewhat regularly and loosely controlled. Category C items are counted the least frequently and controlled loosely. ABC inventory classification is critical for successful inventory management for several reasons.<\/p>\n <\/p>\n Contents<\/p>\n It allows supply chain managers to:<\/p>\n Generally speaking, there are two popular methods of ABC classification.<\/p>\n Some supply chain professionals categorize items based on how frequently they move. For instance, frequently ordered items would sit in Category A, items ordered somewhat often would sit in Category B, and items ordered less frequently would sit in Category C.<\/p>\n The justification for this method is that fast-moving items are more likely to experience stockouts. This means they\u2019re more susceptible to loss, theft, spoilage, or damage. Consequently, warehouse managers keep a closer eye on items with more frequent inventory counts.<\/p>\n Other supply chain managers prefer to categorize items based on their value. The most expensive items fall into Category A; items with an average price fall into Category B; and the cheapest items fall into Category C.<\/p>\n The justification for this method is that these items represent the highest individual sales for a company and, therefore, the biggest potential loss. This would also allow managers to do the right inventory replenishment<\/a> decisions.<\/p>\n In either case, the same logic applies: Companies have a limited amount of time, so they want to carefully allocate their time, energy, and resources to the areas of the business they value most.<\/p>\n Warehouse managers can calculate inventory’s ABC categorization manually in Excel. Once categorized the rating of A, B, or C can be stored in your WMS system to help manage inventory.<\/p>\n <\/p>\n You might assume that the inventory items that generate the most value are your most expensive items – and that might be true. On the other hand, your most valuable inventory items may be moderately priced items that sell in large quantities. Companies identify this by looking at two factors: the demand of an item and the cost.<\/p>\n When the demand levels between different items is equal or close to equal, companies will focus on the cost.<\/p>\n When the cost of different items is equal or close to equal, companies focus on the demand.<\/p>\n The method we will use to conduct an ABC inventory analysis in Excel takes both <\/i>factors into consideration: the demand and the cost.<\/p>\n\n
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How Do You Conduct an ABC Analysis For Warehouse and Inventory Management Systems?<\/h2>\n
How To Calculate an ABC Analysis For Inventory Control And Management In Excel<\/h2>\n
Step 1: Gather All Inventory Data<\/h3>\n