It’s as easy as A-B-C

In mass manufacturing the number of items held in stock can be extremely high and complex. The method to manage such inventory, however, doesn’t need to be.

The ABC analysis is a method of classifying items according to their relative importance and value. It is extremely useful as it informs the business of a number of supply chain functions including sourcing, procuring, receiving, and inventory management.

We have previously discussed Pareto’s 80/20 rule which can be a warehouse manager's friend, but the ABC classification goes a step further still. In short, the items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value. Interestingly, in the plastic injectionmolding world, this is typically in terms of annual consumption rather than the direct monetary value.

For example, you might assume that the inventory items that generate the most value are your most expensive items but in this sector, your most valuable inventory items may be moderately priced items that sell in large quantities.

In terms of determining the ABC approach, the essential steps are that of sorting the data, prioritizing with the general logic of Class A: Items that account for approximately 80% of inventory value; Class B: Items that account for approximately 15% of inventory value and Class C: Items that account for approximately 5% of inventory value.

Following this, the end step is calculated by the formula: (Annual demand) × (item cost per unit), which gives the annual usage value per product, and which can be obtained in a very simple excel sheet.

When a company creates and delivers millions of components annually, the use of this methodology enables better stock control of goods, brings order to the reordering process, and ensures that items are always in stock to meet the demand.

The crux of this is the enablement of companies such as plastic injection molding leader ADIS Tachov s.r.o. who utilize smart lean techniques such as the ABC analysis in order to continually hit their promise of orders being ‘on-time, every-time’.

To find out more about this and a wide range of other processes used daily to ensure excellence, get in touch and speak with our team!