What is ABC Inventory Management? And How is it Beneficial?

Business owners these days follow various inventory management methods to maintain their business inventory levels and make the most out of them. While there are numerous inventory management techniques, ABC Inventory Management still remains a common one used by many stores, warehouse and business owners.

ABC Inventory Management Technique focuses on the value of the products, their market demand and the relative cost and risk data. The method involves categorising the products into three categories – A, B and C. The categorisation is also based on the product's sales volume and profitability.

The three categories are separated as follows:

Category A — Products with Low quantity but High value

Category B — Products with medium quantity and medium value

Category C — Products with High quantity but low value

or vice versa.

The Pareto Principle

The ABC Inventory Management Technique works on the Pareto Principle, which states that the major part of Results comes from only 20% of the right direction efforts. In comparison, the other 80% contribute less to the final result. ABC Inventory Management applies this 80/20 rule on products in the inventory, categorising into the 20% products that deliver high results, and the rest 80% barely contribute to it.  

Categories in ABC Inventory Management
Category	Dollar Value	Inventory Percentage	Annual Consumption	Accuracy of Records	Control
A	High	10% - 20%	70% - 80%	High	High
B	Medium	30% - 40%	15% - 20%	Moderate	Moderate
C	Low	50%	5%	Minimal	Basic

Observing the above table carefully will help you to understand how the Pareto Principle fits in ABC Management very well. It is evident that most of the company's revenue comes from the 20% stock of high value and greater annual consumption.

Benefits of Using the ABC Analysis Method for your Inventory System

Using the ABC Analysis Method for Inventory control can prove to be very beneficial for some business owners who struggle to keep their inventory costs in check. Some of the major benefits of using this technique are:

1. Increased Optimisation

The ABC Analysis helps business owners to identify high cost and low-cost products and accordingly plan their storage and repurchasing schedules based on their demand and stock availability.

2. Improved Forecasting

When you monitor and analyse category-specific data over a period of time, you can make better predictions related to the dip and surge in demand. This would help you make better financial decisions and avoid risking your budget and warehouse space on the wrong products.

3. Improved Pricing Decisions

A better sense of prediction can help you to set reasonable pricing for products while selling. A surge in demand can be an opportunity for setting high prices leading to higher profits. 

4. Better Business Negotiations

When you have a clear idea about the products that sell better and give you better revenue than the others, you will be more confident while negotiating deals with your suppliers as well as your buyers or clients.

5. Optimised Space Allocation

A clear knowledge of the better selling products will help you to prioritise the space and time for them in your warehouse. This will also help you make better decisions regarding buying new stocks, as you would prefer to save space for most selling products rather than the low selling ones.

6. Controlled Inventory Costs

When you have accurate control of the stocks of high-value products and low-value products, you are better able to keep the inventory costs in check through strategic decisions related to selling and purchasing stock.

7. Lower Inventory Cost Risk

When you identify low selling products, you will make sure you don't buy more stocks until the previous ones are sold out. This analysis will help you to avoid the risks of holding high-cost products with low demand in your inventory.

Automate the ABC Inventory Management Process with Unicommerce

To help business owners get a stronger grip on their inventory, Unicommerce has built a powerful cloud-based Inventory Management Software that assists in accelerating and automating the day-to-day tasks involved in managing an inventory.

Used by several renowned e-commerce brands and business today, the inventory management solution by Unicommerce has statistically demonstrated high ROI, contributing to:

• Increased Sales Growth by 20% to 30%

• Reduced Manpower Costs by 30%

• Reduced Inventory Costs by 25%

• Reduced e-commerce Returns by 20%  

The feature-loaded software automates various inventory control techniques, such as the ABC Analysis, FIFO, LIFO, Batch Tracking, Economic & Minimum Order Quantity, Safety Stock Inventory, and many more.

Unicommerce is the best Inventory Management Software and the ultimate solution for all your inventory woes.