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Optimizing inventory management is a must for any company that wants to have an efficient supply chain. Good management allows reduce costs, make better use of supplier delivery times and maximize sales by always having the right products available.
El ABC method emerges as a practical way to prioritize stock, understand which products really impact the business and make more strategic decisions, both in inventory and in other key areas of the operation.
El ABC inventory method, also known as ABC classification, is a technique that orders inventory products according to their economic impact on the company, either by SKU, category or class. Its objective is to help you prioritize the acquisition, replacement and management of products that truly generate value.
It is based on the Pareto principle, which states that 20% of products usually generate 80% of revenues. Applied to inventory, it means that 20% of the product catalog generates 80% of profits, and it is key to know what these products are.
The ABC ranking works by calculating total sales by product, ordering them from highest to lowest based on their share of the total, and then accumulating that percentage to classify them into three groups:
A-rated products represent approximately the first 80% of total sales. They are the most valuable and must have high availability and control.
The products provide the Next 15% of total sales. They are of medium importance and can be managed with moderate levels of inventory.
C-rated products are those that generate only 5% of turnover. Their impact is low and they usually require a reduction, liquidation or bundling strategy.
The “Paso Firme” store, specializing in urban footwear, began to face overstock problems in some models and inventory failures in others. Although they sold about 20 different models, they were not clear about which ones actually boosted sales and occupied the most capital. This resulted in reactive decisions, disordered purchases and loss of opportunities sold in high-demand models. To address this situation, the operations team decided to apply a ABC classification to the inventory, with the objective of prioritizing the most relevant products and improving stock management.
The sales history and unit value of each shoe model sold during the last 12 months were collected. Then, the total value of each product (sales x unit price) was calculated and the models were ordered from highest to lowest according to their monetary contribution to the total inventory. From this ordered list, three categories were defined:
The analysis revealed that most of the resources were invested in a small part of the catalog, while many low-selling models take up valuable warehouse space. Based on this key information, the company made the following decisions:
The ABC method is a good option if your company manages a large and diverse inventory, where not all products require the same level of control. It's also useful if you're looking to optimize resources and focus efforts on the items that really drive the business. However, it is key to have sufficient data and the ability to keep the classification updated regularly so that the analysis remains useful.
On the other hand, if you work with a small and manageable inventory, or you don't have reliable data or the time or resources to keep the system up to date, ABC analysis can become an unnecessary burden. Nor is it the best tool if your business depends on external factors such as seasonality or frequent launches, since the model alone does not incorporate these variables into the segmentation.
You can also download our template for ABC inventory analysis and do it automatically.
Automating your ABC analysis is a must for making agile decisions based on accurate data. Here are some tools you can use to efficiently implement and maintain your ABC classification:
If you're just starting out, a well-structured spreadsheet can help you sort your products based on your sales. It's a good alternative if your inventory is small or manageable, but requires manual updating and careful attention to data quality.
Download our ABC inventory analysis template and calculate your portfolio of most important products automatically.
For companies that handle hundreds or thousands of SKUs, doing this manual process isn't sustainable. With the inventory management software of Datup, you can dynamically automate the ABC classification, updating it according to actual demand, margins and portfolio behavior. In addition, you can integrate it with your systems (ERP, WMS or even Excel) and make smarter decisions about which products to prioritize, what to review and what to discontinue.
El ABC inventory method it's much more than just a classification: it's a strategic tool for making decisions based on the real value of your portfolio. It helps you focus resources on the products that really move your business, improve the availability of what sells the most and free up capital trapped in low-turnover items.
However, its usefulness will depend on having good data, a periodic review and, if your inventory is complex or large, tools that automate the analysis. If you're growing up or
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