ABC Classification

Inventory management is a crucial aspect of ensuring the right products are available to meet consumer demand. A strategic approach to managing inventory involves understanding the importance of each item in your stock. This is where ABC classification comes in handy helping businesses prioritize their inventory based on metrics such as profit, quantity, or revenue.

What is ABC Classification?

ABC classification is a method of categorizing inventory into three distinct categories: A, B, and C. This classification helps businesses focus their efforts and resources on the most impactful items.

• A Items represent the products that contribute most significantly to the driver of the ABC Classification. They may constitute a small portion of the products but demand a high level of attention and management.

• B Items are the middle ground in the inventory spectrum, offering a balance between the high value of A items and the high number of C items. These require moderate attention and resources.

• C Items include the rest of the inventory, typically making up a large percentage of the stock but contributing less to the bottom line. These items require less frequent monitoring and management.

ABC Drivers

Before sorting products into the A, B, and C categories, it's important to select the appropriate ABC Driver, which determines the criteria for the importance of each product. We offer three drivers: profit, revenue, and quantity. Selecting the right driver depends on the nature of the business's products and its strategic objectives.

Profit focuses on the earnings each product brings, ideal for maximizing financial returns. Revenue assesses the total sales value, suitable for understanding market demand and growth contributions. Lastly, Quantity looks at the volume of units sold, critical for inventory turnover and operational efficiency. Each driver provides a distinct perspective, enabling a tailored approach to inventory management that aligns with your business goals.