ABC Inventory Analysis - how to...
- Make a list of part numbers
- Determine total quantity used over some period of time
- Obtaining the cost for each part
- Calculate usage $ value for each part by multiplying the quantity and the cost
- Sort the list from high to low $
- Calculate the total usage $ value for all items
- Calculate each item’s percent of total usage $ value
- Select percentage cut offs for each ABC group, for example:
Once you have classified your parts you can use this data to drive key materials management activities. For example, coordinating your perpetual inventory cycle counting program – you might routinely verify your Category A parts on a monthly basis but only review your category C parts twice a year.
You might use flow orders, kanban, or VMI for your C parts but require detailed negotiated purchase orders for your A parts.
In a warehouse you might want to be sure the A items are near the shipping dock and the C items are toward the back.
You might even want to take a close look at the C items and purge a few.
The main point is – one size doesn’t fit all parts, choose the materials management approach that best serves each inventory category.