ABC analysis

- Not all inventory is the same, therefore you don't manage all inventory in the same manner. All inventory is important, but some inventory is more important than others. So how do you distinguish between the important inventory and the not-so-important inventory, and how to manage differently? ABC inventory analysis is a good approach for this task. It's based on the Pareto principle, named after an Italian economist from the 1800s. Pareto discovered that a small number of people in the economy controlled the vast amount of the total wealth, and the vast majority collectively controlled only a very small amount of the wealth. We know this is true in today's global economy, just as it was back in the 19th century. You can apply the Pareto principle to just about anything, wealth distribution, inventory value, sales by product, revenue by customer, just about any aspect of business. In general, you will find that 80% of…