The Classification of Inventory

The Classification of Inventory

The classification is one of the best measures of internal control of inventories, and when applied correctly can allow to maintain the minimum invested in stock capital, among many other benefits.

ABC Classification

Vilfredo Pareto was an Italian sociologist and economist who in 1897 said that 20% of people sported 80% of political power and economic wealth, while the remaining 80% of the population, called mass, was distributed with the remaining 20% ​​of the wealth and political influence. This principle is likely to apply to many environments, within which include quality control, the logistics and inventory management. In internal control of stock, this principle means that a few units of inventory represent most of the value of using them. Articles discrimination is necessary in any organization in order to determine those which by their nature require a more rigorous control.

The ABC classification is a product segmentation methodology according to preset criteria, indicators of importance such as the ‘unit cost’ and the ‘annual volume respondent’. The criterion on which most experts are based on matter is the value of inventories and percentages are relatively arbitrary classification.

Many texts often see the area ‘A’ classification strictly corresponds to 80% of the valuation of inventory, and the remaining 20% ​​to be divided between the areas ‘B’ and ‘C’ taking very close percentages 15% and 5% of the value of the stock for each zone respectively. Other texts often associate the ‘A’, ‘B’ and ‘C’ with respective percentages of the value of inventories 60%, 30% and 10% areas, however, the former is much more common due to the fact of conservation principle ‘80-20’. It is worth remembering that while the above values ​​are a guide applied in many organizations, each organization and inventory system is unique, and that applies each principle weighting must be acutely aware of the reality of company.

Controls for Areas of Classification

Control ZONE A”

The units belonging to A zone require the highest possible degree of rigor in terms of control. This area corresponds to those units that have a significant proportion of total inventory value. The maximum control can be reserved for raw materials to be used continuously and in high volumes. For this kind of raw material, purchasing agents can conclude contracts with suppliers to ensure a constant amounts to equate supply utilization ratio, taking into account preventive risk management measures such as the providers of B. The area A must have location and space advantages compared to the other units of inventory as these benefits are determined by the type of storage you use in the organization.

Control ZONE B

B should be followed and controlled by computerized systems with periodic reviews by the administration. The guidelines for inventory model are discussed less frequently than in the case of units corresponding to A Zone. The costs of missing inventory for these units should be moderate to low and safety stock should provide adequate control with the breakdown of stock, even when the frequency of orders is lower.

Control ZONE C

This is the area with the largest number of units of inventory, thus, a control system designed but is suitable for routine monitoring. A reorder point system that does not require physical assessment of stocks is usually sufficient. You can learn more here in this regard.


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