ABC analysis (Definition)

 ABC Analysis

ABC analysis is a process of classification where items are categorized into "A", "B", and "C" according to their uses. This is a widely used analysis for inventory and in this analysis, high uses items are classified with "A". Medium-usage items are classified with "B", and low-usage items are "C".

Characteristics of each of these classifications:

"A" Inventory: These inventories should be monitored on daily basis and should solve any problem that arises immediately.

"B" Inventory: These inventories should be monitored frequently and if a problem arises the purchasing staff should be notified.

"C" Inventory: These inventories are manually monitored and need less monitoring.

Where to Apply ABC Analysis?

ABC analysis can be applied at the time of cycle counting. Using ABC analysis inventory monitoring can be less time and cost-consuming. Here in ABC analysis we give the highest priority to the "A" category items and ensure they meet the highest levels of inventory accuracy. 

ABC Analysis in Consumers Segmentation:

ABC analysis can be used in customer segmentation as we can categorize the most profit generating customers by "A". Medium profit generators with "B", and less profit-generating customers with "C". We also give them services accordingly.