Definition Of ABC Classification


ABC Classification

 

ABC classification is a type of ranking system where the inventory raw materials are divided into different groups based on how useful they are for the production. This will help in maintaining a smooth flow of production without causing any hold-up or delay. The items are divided into 3 groups:

A – Covers the most important items for production

B – Contains the list of moderately important items

C – These items are relatively unimportant

This classification considers the well-known 80/20 rule which states that 80% of the results are dependent on 20% of the inputs. ABC classification helps the firm to identify the 20% factors that influence the health of the production. It also helps to control these factors efficiently. The factors contributing to A category needs more attention than the other 2 categories. In such manner the firm can take good care of its resources and manage the production according to the needs.

You can get definitions of terms related to ERP classification at ERP dictionary.