ABC Classification

CIOP is an end-to-end supply chain certification program that focuses on practical aspects in addition to the theoretical concepts. For example, a typical supply chain certification may teach what is cycle counting and how to do the ABC classification. CIOP starts with these fundamental concepts and goes on to teach the participants to develop the cycle counting policy of an organisation, 10+ criteria used in ABC classification, multi-criteria ABC classification and cycle counting best practices to increase the efficiency and effectiveness. In case of CIOP, you learn the concepts and will be ready to implement in your day-to-day job in supply chain. The pedagogy is structured such a way that all the concepts are explained with industry examples, which makes CIOP as the preferred training and certification program for supply chain within the industry.

ABC Classification is a powerful method to manage your inventory. In most cases the break down is as follows: A product represents 10% of your total inventory but are 80% of your annual turnover. C items represent 20% of your total inventory but are only 5% of your turnover. These two categories, Sales and Inventory, are what management uses to determine the allocation of resources in your production and warehouse.

ABC Classification helps managers and decision makers to make the best decisions for inventory allocation. They identify the key takeaways from each category of inventory and then assign an inventory level to it based on these key takeaways. For example, if the key takeaway is that you want to keep your inventory of finished goods at a minimum then you would address that by including finished goods in your production and warehousing strategy and include short supply in your procurement strategy. Once you have determined the allocation of your inventory resources for inventory functions such as production, logistics, and procurement you can then break down your inventory by department and include the raw materials, labor, and other elements that directly affect the inventory cost of your firm.

The ABC classification system first divides your firm's inventory into three groups before determining the quantity of each group in terms of unit cost, the average cost per unit (ACU), and minimum quantity. Next, the classification system divides your inventory by function, then identifies how much of each item is needed in any given function. Lastly, the classification system assigns a numerical value to each inventory item. This numerical value is used to calculate the cost of your firm's inventory and then determine what percentage of that inventory should be maintained for each function. This entire process takes only a few seconds and is very effective for managers who need quick yet accurate inventory determinations.

Related Articles

What is ABC Classification in Operations Management?
ABC Classification
How to do ABC Analysis & Classification?
Inventory Classification Basics: Using the ABC Method
Inventory Classification - ABC Classification, Advantages & Disadvantages