ABC method (Definition)

ABC Method Definition

What is the ABC Method?

ABC method classifies the inventories according to their uses. This inventory classification method is based on the concept that most of the production needs only a few amounts of inventory regularly.ABC method can be used in also other sections than inventory. The main goal is to divide the inventories into three categories.

"A" Inventory: These inventories should be monitored on daily basis and should solve any problem that arises immediately. This is the 5% of all inventories that are responsible for 75% of all transactions.

"B" Inventory: These inventories should be monitored frequently and if a problem arises the purchasing staff should be notified. This is the 10% of all inventories that are responsible for 15% of all transactions.

"C" Inventory: These inventories are manually monitored and need less monitoring. This is the 85% of all inventories that are responsible for 10% of all transactions.


How to Assign ABC Codes to Inventory?

In the warehouse, all the inventories should be kept according to the ABC method to ensure efficient movement of inventories. "A" classified items should be kept to a close place to the production as these items are used frequently. "C" items are used in long intervals, so they can be kept at a long distance from the production area. "B" items can be kept in between of these two items.
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