Applications of Pareto’s Law or the 80/20 rule. ABC analysis, as related to inventory, is simply a determination of the relative ratios between the number of items and the dollar value of items purchased repetitively for stock. Typically 5-10% of the items (“A” items) account for 75-80% of the investment, 20-25% of the items (“B” items) account for 15-20% of the investment, and 70-75% of the items (“C” items) account for 5-10% of the investment. Inventories should be managed accordingly, with more emphasis placed on the strategic management of the “A” items.
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Applications of Pareto’s Law or the 80/20 rule. ABC analysis, as related to inventory, is simply a determination of the relative ratios between the number of items and the dollar value of items purchased repetitively for stock. Typically 5-10% of the items (“A” items) account for 75-80% of the investment, 20-25% of the items (“B” items) account for 15-20% of the investment, and 70-75% of the items (“C” items) account for 5-10% of the investment. Inventories should be managed accordingly, with more emphasis placed on the strategic management of the “A” items.
To view a list of resources available on the SIG website on this topic, click here.