By: Sheri Blaho
- ABC Stratification is really a method to prioritize managements' attention to the most important inventory items (A items) and to minimize distractions of unimportant inventory (C items).
- Do I know what my ABC inventory list looks like?
An ABC analysis provides you a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a tool for identifying different classifications of stock that will require different management and controls.
"A" items represent 20% of individual stock items that accounts for 70% of the annual consumption value.
“B” items represent 30% of individual stock items that accounts for 25% of annual consumption value
“C” items represent 50% of individual stock items that accounts for 5% of annual consumption value.
A-items should have tight inventory control, more premium storage areas and solid sales forecasts. Reorders should should be frequent, with weekly or even daily reviews of reorder needs. Avoiding stock-outs on A-items is a priority
B-items benefit from the status between A and C. An important aspect of class B is the monitoring of potential evolution toward class A.
Reordering C-items is made less frequently. A typical inventory policy for C-items consist of having only minimal units on hand, and reordering only when an actual purchase is made. This approach leads to stock-out situation after each purchase which can be an acceptable situation, as the C-items present both low demand and higher risk of excessive inventory costs. For C-items, the question is not so much how many units do we stock? but rather do we even keep this item in stock?