ABC Analysis

A method of categorizing inventory items into three classes, 'A' items being the most valuable, 'C' the least.

What is ABC Analysis?

ABC Analysis is a technique used in inventory management to categorize items based on their importance and value. It classifies products into three categories: A, B, and C. Category A consists of high-value items that contribute significantly to the overall revenue or cost. These items are closely monitored and managed to ensure high availability and minimal stockouts. Category B includes items of moderate importance, which are managed with a balance between cost and service levels. Category C comprises low-value items that have minimal impact on overall performance. These items are typically managed with a focus on cost reduction and efficiency. ABC Analysis helps businesses optimize their inventory management by allocating resources effectively based on the importance of each item. By understanding the relative significance of different products and focusing on the most critical ones, companies can improve operational efficiency, reduce costs, and enhance customer satisfaction. This method enables businesses to prioritize their efforts on key areas while streamlining less critical aspects of inventory management.