ABC analysis

What is ABC analysis?

The goal of ABC analysis in logistics is to achieve optimal inventory management. The most important factors are: Storage costs, storage value, the physical storage, the stock, 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 prioritize and decide on each item requires high resources to perform the allocation to the ABC classes. That is also the largest disadvantage of the ABC analysis. The determined value is always a compromise.

ABC analysis has a great importance in any warehouse.

The goods are distributed or accumulated in the warehouse according to different priorities (routes, 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 the ABC analysis must be done with common sense. This task is a continuous process of analysis and rework.

The ABC analysis in the warehouse also helps in the decisions to select 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 in the field of materials management.

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