ABC Product Analysis

ABC analysis,is a technique used in inventory management and resource allocation to categorize items into three groups based on their importance. The analysis is named after the three categories: A, B, and C.

1. Category A: This category represents the most important items, typically constituting a small percentage of the total items but accounting for a significant portion of the overall value. These items are high-value and require close monitoring and tighter control.

2. Category B: Items in this category are of moderate importance. They are less valuable than Category A items but more valuable than Category C items. They usually represent a moderate portion of the total value.

3. Category C: This category contains the least valuable items, often comprising a large percentage of the total items but contributing a relatively small proportion of the overall value. These items are generally less critical and may not require the same level of attention as items in Categories A and B.

The purpose of ABC analysis is to help businesses allocate resources effectively based on the relative importance of items. It allows them to prioritize their efforts and resources on managing the most valuable items while potentially applying looser controls on less critical items.

Here's an example to illustrate:

Let's say you're managing inventory in a retail store:

• Category A items might include high-end electronics or luxury goods that make up a small percentage of the inventory but contribute a significant portion of the revenue.

• Category B items could be mid-range products that are important but not as crucial as Category A items.

• Category C items might consist of low-cost, everyday items like office supplies, which individually contribute less to the revenue but make up a large portion of the total inventory.

By applying ABC analysis, a business can tailor its inventory management strategies to each category. For instance, Category A items might be closely monitored, ordered in smaller quantities, and stored in secure locations. Category C items might be ordered in larger quantities and stored in less secure or easily accessible areas.

This technique is not limited to inventory management and can be applied to various aspects of business, such as customer segmentation, sales analysis, and time management. It helps in focusing resources where they can have the most significant impact.

In Versa, the category is calculated for you and can be seen from the Products menu, View Inventory Profile.  From here you can view each product category status, as well as download a file containing all products and status. The report is sorted by inventory value per product in descending value so inventory with the most values are shown at the top of the list.  % column is the total inventory value of the product as a percentage of the total inventory value. Cumulative % column is the total value from all products from the beginning of the report to the current row as a percentage of the total inventory value.  Products within the 80% Cumulative % is classified as A , from 80% to 95% is classified as B and from 95% to 100% is classified as C.