What is the ABC Inventory System?
The ABC inventory system is a method of managing and controlling inventory based on value used. The value of a product used is simply the number of units consumed or sold multiplied by the unit price.
The system is based around the Pareto principle otherwise known as the 80 – 20 rule, and in the case of inventory means that 80% of the value of the inventory used comes from 20% of the products.
By classifying products as A, B, or C the effort put into managing the inventory such as avoiding stock outs, security, re-order frequency etc, can be prioritized towards the A class products while the B and C class receive less attention.
For further information on the ABC inventory system see the Wikipedia definition.
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