ABC inventory classification is a method used in inventory management to categorize items based on their relative importance in terms of value and control. It is named after the three alphabetic categories - A, B, and C - that are used to characterize the items.
In this classification system, items are evaluated based on their monetary value, frequency of sales, or some other relevant criterion to determine their classification. The main objective behind ABC inventory classification is to prioritize inventory control efforts by identifying and focusing on the most important items.
Class A represents the highest-priority category in ABC classification, consisting of items with the highest monetary value or sales frequency. These items typically account for a small percentage of the total inventory but contribute to a significant portion of the overall value or sales.
Class B includes moderately important items that have a moderate value or sales frequency. These items are usually more numerous than Class A items and contribute to a moderate share of the inventory value or sales.
Class C includes the least important items, usually with lower value or sales frequency. Although these items may make up the majority of the inventory quantity, they contribute minimally to the overall value or sales.
By categorizing items into these classes, businesses can allocate resources efficiently and focus on managing the high-value or high-frequency items more effectively. This classification system helps optimize inventory control, reduce costs, identify potential risks, and improve overall inventory management efficiency.
