Use paretto principle in the same way, as it is done by big wholesalers.
For example one of the Auchan departments was able to increase turnover on 30%!
Does your company has more then 50 stock items?
With help of ABC-XYZ analysis some of our customers saved ~30% on turnover. With help of proper analytics, your income may be increased on 30%.
The name of project is “ABC analysis”. The project is built on ABC method of inventory control which involves a system that controls inventory and is used for materials and throughout the distribution management. It is also known as selective inventory control or SIC.
ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C in descending value. The items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value.
Inventory control and management are critical for a business. They help to keep their costs under control. The ABC analysis helps the business to control inventory by letting the management focus on the highest value goods (the A-items) and not on the many low-value goods (the C-items).
It has become an indispensable part of a business and the ABC analysis is widely used for unfinished good, manufactured products, spare parts, components, finished items and assembly items. Under this method, the management divides the items into three categories A, B and C; where A is the most important item and C the least valuable.
ABC inventory analysis is based on the Pareto Principle. The Pareto Principle states that 80% of the sales volume are generated from the top 20% of the items. It means that the top 20% of the items will generate 80% of the revenue for the business. It is also known as the 80/20 rule.
This method is significant to identify the top category of inventory items that generate a high percentage of yearly consumption. It helps the managers to optimize the inventory levels and achieve efficient use of stock management resources.
In the ABC model of inventory control, items categorized under A are goods that register the highest value in terms of annual consumption. It is interesting to note that the top 70 to 80 percent of the yearly consumption value of the company comes from only about 10 to 20 percent of the total inventory items. Hence, it is crucial to prioritize these items.
These are items that have a medium consumption value. These amount to about 30 percent of the total inventory in a company which accounts for about 15 to 20 percent of annual consumption value.
The items placed in this category have the lowest consumption value and account for less than 5 percent of the annual consumption value that comes from about 50 percent of the total inventory items.
The idea behind using the ABC analysis is to leverage the imbalances of sales. This means that each item must be given the appropriate amount of weight depending on their class:
a) These are subjected to strict inventory control and are given highly secured areas in terms of storage
b) These goods have a better forecast for sales
c) These are also the items that require frequent reorders on a daily or a weekly basis
d) They are kept as a priority item and efforts are made to avoid unavailability or stock-out of these items
a) These items are not as important as items under section A or as trivial as items categorized under C
b) The important thing to note is that since these items lie in between A and C, they are monitored for potential inclusion towards category A or in a contrary situation towards category C
a) These items are manufactured less often and follow the policy of having only one of its item on hand or in some cases they are reordered when a purchase is actually made
b) Since these are low demand goods with a comparatively higher risk of cost in terms of excessive inventory, it is an ideal situation for these items to stock-out after each purchase
c) The questions managers find themselves dealing with when it comes to items in category C is not how many units to keep in stock but rather whether it is even needed to have to these items in store at all.
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