Are you familiar with the 80:20 rule? Also known as the Pareto principle, the 80:20 rule states that approximately 80% of the results come from 20% of the causes. This principle is applicable in various contexts, including store management. One effective approach to efficient inventory management in stores is the ABC inventory management technique.
What is ABC Inventory Management?
In stores, around 20% of the products typically account for 80% of the sales. To manage such inventory effectively, stores classify their products into A, B, and C categories.
A Category: These are the top-performing products that contribute to the highest sales. They require the highest level of attention in terms of management.
B Category: These products have lower sales compared to the A category and occasionally transition between A and C categories.
C Category: These are the products with the lowest priority in terms of management.
Strategies for A Category Inventory Management
The A category products usually contribute to around 80% of the total sales. Although they have fewer SKUs, they are crucial products in the store, characterized by high inventory turnover. To effectively manage A category inventory, it is important to implement a periodic ordering system that ensures proactive restocking before running out of stock. A category inventory management involves placing frequent orders with smaller quantities.
Periodic Ordering System: Ordering inventory at regular intervals, considering fluctuations in stock levels.
Strategies for B Category Inventory Management
The B category products account for approximately 15% of the total sales. Although they are not as critical as the A category, B category inventory requires attention as they can transition to A or C categories. To manage B category inventory effectively, a quantity-based ordering system that is slightly less strict than the A category is commonly used.
Quantity-Based Ordering System: Placing orders for a predetermined quantity without a fixed interval.
Strategies for C Category Inventory Management
The C category products represent around 5% of the total sales and are characterized by a larger number of SKUs and slower turnover. Given their low management priority, the typical approaches for C category inventory management include utilizing the Two Bin System and Just-in-Time (JIT) method.
Two Bin System: Utilizing two shelves or bins, initially stocking inventory in both bins, and using one bin's inventory after depleting the other.
JIT (Just-in-Time): Ordering only the necessary quantity without stockpiling inventory.
Implementing strategic inventory management techniques is key to effectively managing a store's sales. If you find yourself with excessive C category inventory or insufficient A category inventory, why not consider applying the ABC inventory management technique for better management results?