B items: Inventory that sells regularly but not nearly as much as A items. Often inventory that costs more to hold than A items.
C items: This is the rest of your inventory that doesn’t sell much, has the lowest inventory value, and makes up the bulk of your inventory cost.
The Pareto principle, also known as the 80/20 rule, states that 80% of outputs are caused by 20% of the inputs.
The eponymous principle was discovered by Italian economist Vilfredo Pareto, who observed that 80% of the peas in his garden came from only 20% of the pods he planted. More significantly, he noticed a similar ratio when he realized 80% of land in Italy was owned by 20% of the population.
Explain how ABC analysis can be used to improve the efficiency to the customer service activity
Using ABC analysis, inventory planners can predict the demand for specific products and manage their inventory accordingly. This insight minimizes carrying costs for obsolete items, thus improving your supply chain management.
The success of many businesses hinges on A-class inventory. ABC analysis enables you to identify those items in real-time, monitor demand for them, and ensure they’re never out of stock. By channeling your resources towards high-priority inventory, you can rest assured you’re putting the odds of success in your favor.
ABC analysis can optimize your pricing strategy for products that bring the most value to your business. Once you understand which products are in high demand, you can increase their price, which can significantly impact profits.
