The aim of ABC analysis in logistics is to achieve optimal inventory management. The most important factors are: Storage cost, storage value, physical storage, inventory level, quantity share, sales share, etc.
The method is based on a three-level classification (ABC classification) of the products or goods in the warehouse. The principle of ABC analysis is very simple. However, the effort required to prioritize and decide on each item requires high resources to perform the allocation to the ABC classes. This is also the main disadvantage of ABC analysis. The determined value is always a compromise.
The ABC analysis has a great importance in every warehouse.
The goods are distributed or cumulated in the warehouse according to different priorities (itineraries, total value, customers, category, etc.). Before distribution, the proportions must be correctly determined.
The presentation of quantities (mostly in percent) is based on the data collected via various tools. The IT systems today offer clear advantages. There are no limits to creativity here. Despite the technology, the parts of ABC analysis must be done with common sense. This task is a continuous process of analysis and rework.
History of ABC Analysis
The general ABC analysis was developed by a renowned Italian economist Vilfredo Pareto (1848 to 1923). H. Ford Dickie, manager at General Electric, further developed the method in the 1950s and applied the results in the field of materials management.