Utilizing the ABC’s can go a long way in detailing exactly how, where, and why inventory is stored and managed. We take a brief look the ABC strategy and how to make the most of this fundamental game changer.
What is ABC Inventory?
Everyone has an underlying strategy, whether it is organizing everything in a single Excel sheet or just shoving everything in a giant warehouse. There is at least some method to the madness…probably.
But the ABC method streamlines things at the most basic level. ABC Inventory organizes your contents into three essential categories: A, B, and C.
- A Items: These are items which are sought almost daily. A items are bestsellers. They are sold quickly and either don’t take up a lot of long-term space because of this turnover or they are stocked right “upfront” and are easy to access.
- B Items: B items are sold regularly, but there is a higher cost related to them. Perhaps they are larger items that require a lot of warehouse space. Perhaps they are popular seasonal items that may be burdensome nine months out of the year but make back any their space costs during the peak season.
- C Items: C items are the remaining inventory. These items can be bulky, they usually don’t sell well, and they can spread out all over the warehouse. Common C items are seasonal, declared a specialty, part of small or limited runs, or overstock.
The above is the basic breakdown of the ABC Analysis. Inventory management software consequently helps organize inventory into one of these three core categories.
How Does it Help?
The ABC approach helps divide inventory based largely on how often it is accessed. But how does this help in practice?
It helps by easing inventory management practices. More specifically, the ABC method helps owners identify the flow of their products. If you identify a product as A, you know it needs to be reordered more frequently. You can make proactive steps towards stocking these items regularly. B category items can safely be moved to less immediately-accessible areas of the warehouse. This allows you to make room for A category items and also keeps inventory stock at the proper level and location.
A proper utilization of the ABC method ultimately reduces obsolete inventory. Owners have a much better idea of what items are regular stock and what items can be pushed aside. This can help identify areas of marketing potential (such as special sales on C products) and items which can remain future focus areas (A items are bestsellers).
The location can help expedite work orders and even decrease working capital. You only stock what is needed to the closest approximation. It keeps more money fluid and less tied up to (sometimes) needless inventory orders.
Inventory turnover is tighter, allowing for a maximum utilization of the warehouse space you have. You aren’t buried in extra space (and paying higher rent), and you aren’t scrambling to find inventory you need to fulfill orders because it’s buried in obsolete stock.
While many inventory managers have a general idea of what item belongs in what category, they don’t often actively practice it. Make a habit of identifying the status of your inventory. Know it inside and out so you can make informed decisions about what you should do with it- and where it should go.