What is ABC?

What is ABC?

1. It is derived from the term "the Pareto principle" named after an Italian economist Vilfredo Pareto, also called the 80/20 rule.

2. Category A: is the smallest, always reserved for the most lucrative. It represents the highest quality, the most valuable products and the customers it has.

3. Category B: This category, in particular, has the potential to move to category A if sales are good, or may even be downgraded to category C.

4. Category C: They have a marginal value. These products will help you to manage your business continuously, with a fixed and stable income, but they do not bring much value individually to the seller or the business.

5. Why use ABC analysis? There are 6 reasons why a company should opt for ABC analysis (end-of-life management, supplier negotiation, inventory optimization, strategic pricing, resource allocation and customer service levels).

6. How is the ABC analysis done? Identify what needs to be analyzed and define the success criteria, Collect your inventory data that has been analyzed, Sort your inventory in decreasing order of impact, Calculate the cumulative impact, Divide your inventory into purchase classes and analyze the categories and decide accordingly.