Supply Chain Glossary - A

ABC analysis also ABC classification

Syn: ABC classification.

The classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria. This array is then split into three classes, called A, B, and C. The A group usually represents 10% to 20% by number of items and 50% to 70% by projected dollar volume. The next grouping, B, usually represents about 20% of the items and about 20% of the dollar volume. The C class contains 60% to 70% of the items and represents about 10% to 30% of the dollar volume. The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than will be applied to high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing, sales, and so on. Syn: ABC analysis, distribution by value, See: 80-20, Pareto analysis, Pareto's law.

 

Related Resources

 

White Paper: The Pareto Principle & ABC Analysis


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