Blog Post
ABC Analysis
Cloud Accounting • October 7, 2019
Dreading the word “Inventory”?
Inventory management processes are imperative to succeed as a retailer of any kind — eCommerce, multi-channel, brick-and-mortar, omnichannel — if you want to seriously compete.
Inventory management saves you money and allows you to fulfil your customers' needs. In other words, it enables successful cost control of operations. Knowing what you have, what is in your warehouse, and how to manage the supply chain properly is the backbone of the business.
What is Inventory Management?
Inventory management refers to the process of ordering, storing, and using a company's inventory. These include the management of raw materials, components, and finished products, as well as warehousing and processing such items.
Inventory Management Techniques
This week we are focusing on ABC Analysis and why it is one of the most popular and effective inventory management techniques you can use to improve your business.
ABC Analysis
ABC analysis of inventory is a technique of sorting your inventory into three classes according to how well they sell and how much they cost to hold:
- Category A-Items – popular items that don’t take up all of your warehouse area or cost
- Category B-Items – Mid-range items that sell often, however, might cost more than A-items to hold
- Category C-Items – the remainder of your inventory that makes up the majority of your inventory costs while contributing the smallest amount to your bottom line
ABC analysis of inventory helps you retain working capital costs low because it identifies which items you must reorder more often and which items don’t need to be stocked as much – reducing obsolete inventory and optimizing the rate of inventory turnover.
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Just-in-Time (JIT) Inventory Management is simply creating what's required, when it’s required, within the amount required.
Minimum order quantity (MOQ) is the lowest set quantity of stock that a provider is willing to sell. If you can’t purchase the MOQ of a particular product, then the provider won’t sell it to you.
Economic order quantity is the lowest amount of inventory you want to order to fulfil peak client demand while not going out of stock and without producing obsolete inventory.
