The analysis system known as ABC groups items into 3 categories, according to the value they bring to the company. That is, it gives priority to the products with which the company earns more. Classifying the merchandise based on the value they provide and distributing them according to that criteria is a way to improve the general performance of the warehouse.
The ABC analysis method is one of the most used to manage warehouses since a high level of efficiency is achieved, thus reducing the travel times of operators or automatic equipment.
It is based on the 80/20 rule or Pareto Law, which means that 80 percent of sales are generated by around 20 percent of products.
Following this ABC system to classify all inventory, you would have to designate a letter for each type of product, with this scheme:
• The A is for the products that represent 80% of the movement of the warehouse, and that suppose around 20% of the stocks.
• The B are those products that represent 15% of the movement, and around 30% of the stocks.
• The C classifies products with only 5% movement in the warehouse, and which represent 50% of the stock.
The next step is to actually implement the ABC inventory system and warehouse reorganization.
Top 5 benefits of the ABC system
1. Gain efficiency: by reorganizing storage all processes improve. The resources of a warehouse are limited. By identifying the most valuable part of the inventory and with the highest demand, you can focus the greatest effort on what will add the most value to your company.
2. Control the stock: It is necessary to have an indicator that indicates which are the highest priority products in order to focus the greatest efforts on them to prevent stock breaks and always have merchandise available.
3. Improve productivity: reorganizing your warehouse with the ABC system will allow you to access the most demanded products more easily and in less time.
4. Increases customer satisfaction: By improving warehouse operations, orders are prepared faster and shipped in shorter periods of time.
5. Reduce costs: all of the above points imply better budget control and a reduction in all company expenses.
Keys to doing an ABC analysis
The analysis and subsequent categorization of the products in a warehouse can be done based on different parameters, as appropriate in each particular case.
• By turnover: the stocks with the highest demand and, therefore, the highest turnover, are identified and classified as A, and will be under permanent inventory control. Those with the lowest turnover would be C.
• By cost or value: products A are those with the highest cost per unit and C are those with the lowest cost. This classification method is more appropriate for stores with products in a very wide price range.
• By a combination of rotation and value: it is the most complete criterion, according to which the products categorized as A are those with the highest value and greatest demand; At the opposite extreme would be C.
Full inventory control
Comprehensive and efficient inventory control has to go hand in hand with technology. There are different ways to manage an inventory, but all of them involve implementing warehouse management software that allows access to relevant information at any time.