ABC analysis

What is ABC analysis?

The aim of ABC analysis in logistics is to achieve optimal warehousing. The most important factors are: Storage costs, storage value, physical storage, stock level, quantity share, turnover 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 prioritise and decide on each item requires high resources to perform the allocation to the ABC classes. This is also the biggest disadvantage of ABC analysis. The value determined is always a compromise.

The ABC analysis has great importance in every warehouse.

The goods are distributed or cumulated in the warehouse according to different priorities (routes, total value, customers, category, etc.). Before distribution, the proportions must be correctly determined.

The presentation of the 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 the ABC analysis have to be done with common sense. This task is a continuous process of analysis and improvement.

The ABC analysis in the warehouse also helps in the decisions for selecting the appropriate picking methods (such as. Pick-to-Light, Voice Picking, Pick-by-Point, etc.). 

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 to the field of materials management.

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