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Inventory Question Number Six of Seven
Published on by CS3 Technology in Blog Posts

 

By: Sheri Blaho

 

  1. 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).    

 

  1. 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.   

 

Typically:

  "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?

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