Best Practices of Inventory Management

Inventory Classification

You don’t need to put equal focus on each and every item

As we all know 80% of the inventory value is contributed by 20% of your items. The numbers 80 and 20 can be here are there but my experience showed exact 80-20 rule in most of the cases. This classification drives all your Inventory strategies like Storage space, Replenishment methods, Cycle counting frequencies, Order methods, Make vs Buy etc.

All of us know about ABC analysis but we need to know more on what comes under A,B or C apart from the value of items that we all know.

A typical analysis tells:

  1. A – items are the best selling items that need to tell you on priorities, decide on replenishment processes, cycle counting etc. However if the items are manufactured by you I see every item that goes in to Bill of the manufactured item is equally important. An Audi car cant be made even if a specific nut or bolt in it’s bill is missing !!!
  2. B-items are also high and medium value items and medium priority items. Most of the times these items are enablers that are equally important like the items that go in to Bill of finished item
  3. C- items are expense items like Stationary and not even one C-Item should be part of the Bill in my opinion. These items are handled in large numbers and their order methods are typical fixed order quantities or similar at regular intervals or on Re-order point based.

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