Should it be revenue, units, profit or something else altogether? Should it be done for each market, for each factory, or for both? In addition, different functional managers have different perspectives on what should constitute “the volume” basis. In multinational organizations it is not even evident which product catalogue should be used for the classification. Getting that message out and adopted by a broad, extended community of planners is in itself a managerial challenge. The right answer, we would argue, is that the A-SKUs return the highest value from attention in determining the appropriate target service level and required inventory and supply chain agility. The other half felt that A-SKUs should have more inventory than the other SKUs, as they are most vital to revenue. About half said that A-SKUs should have less inventory, because they are so impactful to the stock levels. whether an “A-SKU” should have more inventory or less inventory than the “B-” and “C-SKUs”.
#Abc box strategy how to#
We asked supply chain planners from the same company how to manage their Stock Keeping Units (SKUs), i.e. If a company is going to perform an ABC classification, the first, most basic question is ‘why’? This question may be harder to answer than one might think. From this, the ABC classification arose and has been a staple of supply chain inventory management for over 30 years in applying segmentation strategies. In most contexts, about 80% of the sales volume is indeed from about 20% of the product catalogue. ABC classification has entered popular language and is often referred to as the ’80-20’ rule. A quick Google search will yield many real – and many not-so-real – examples of the 80-20 rule explaining distributions in fields ranging from the natural to the sociological.īut for supply chains the 80-20 rule has definitely demonstrated its merit.
It relies on the properties of the Pareto distribution and states that about 20% of a population will account for about 80% of the volume. ABC Classification: It is one of the oldest, most reliable methods for catalogue or customer segmentation.
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