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ERP Dictionary

Definition Of ABC Classification

Definition of ABC classification: A sorting of the items in an inventory in decreasing order of annual dollar volume or other criteria. This array is then split into three classes, called A, B, and C. Class A contains the items with the highest annual dollar volume and receives the most attention. The medium Class B receives less attention, and Class C, which contains the low-dollar volume items, is controlled routinely. The ABC principle is that effort saved through relaxed controls on low-value items will be applied to reduce inventories of high-value items.

"ABC classification (ABC ranking) is a method of ranking items held in inventory enabling particular attention to be given to those that, if correctly managed, will be most damaging to the effectiveness or the efficiency of an operation. Items are categorized according to their value of usage, i.e. their individual value multiplied by their usage rate."

" The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: A - outstandingly important; B - of average importance; C - relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and less to C."

Most of the Open Source ERP systems supports ABC inventory classification.

Inventory Control Application: The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management.

This following table constructs an empirical cumulative distribution function (ECDF) as a measuring tool and decision procedure for the ABC inventory classification.

Enter the dollar values and demands of distinct items and then click the Calculate button. Blank boxes are not included in the calculations but zeros are.

To edit your data, including add/change/delete, you do not have to click on the "clear" button, and re-enter your data all over again. You may simply add a pair of numbers to any blank cells, change a number to another in the same cell, or delete a number from a cell. After editing, then click the "calculate" button.

Clear all of them to enter new set of data.

Item Number
1

2
3
4

5
6
7

8
9
10

11
12
13

14
$ Value for Each Item

Demand for That Item

Item Number
15

16
17
18

19
20
21

22
23
24

25
26
27

28
$ Value for Each Item

Demand for That Item

Item Number
29

30
31
32

33
34
35

36
37
38

39
40
41

42
$ Value for Each Item

Demand for That Item

Necessary Tools for the ABC Classifications


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



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