ABC Inventory Management
ABC Inventory Management refers to managing inventories differently based on a classification scheme. The classification scheme could be based on profit, volume, or something else.
Profitability Scheme Example
"A" items: top 10 percent of product line based on importance or profitability;
"B" items: next 15-20 percent of items, based on profits;
"C" items: those that sell infrequently or are low margin
Volume Scheme Example
"A" items: top SKUs that represent 70% of the sales volume
"B" items: SKUs that represents further 20% of the sales volume
"C" items: Bottom SKUs that represent remaining 10% of the sales
It si very common that Pareto principle can be observed in ABC classification ( Example: 10% of SKUs contributes to 70% of the sales volume.
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