ABC Classification

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ABC Classification - short version

The division of products in a group into three sub-groups: Group A, Group B and Group C. Division is usually accomplished by the following three step process: (1) the calculation for each product of its annual value, this being its "annual usage x its unit value"; (2) the ranking, or ordering, of all the products into an order based on their annual values, as calculated in Step 1, thus forming a list of products in descending order of annual value; and (3) the sub-division of the list in Step 2 into three groups according to Pareto principles. (The Pareto principle is that the top 20% (approx) of the products in the ordered list will account for some 80% of the total annual value of all the products together.) Thus the products in the list are split into the top group, called "A" (20% of the products, but 80% of the total annual value), the next group "B" (say, 30% of the products, about 15% of the total annual value) and the bottom group "C" (50% of the products, 5% of the total value). In fact, the split is arbitrary and it may be preferable to subdivide the products in other ways (eg the top 10% A, the next 15% B and the bottom 75% C). It may also be desirable to create a fourth group D - say, the bottom 20%, perhaps representing a mere 1% of the total annual value. Note also that if A products are to be looked after closely, and C products not at all so, then it may be desirable to promote a few "line stoppers" from Class C to Class A. The notion of the vital few and the trivial many is widely used. For example, in quality, Dr Joseph Juran maintained that 80% of trouble was caused by 20% of the problems, so, he recommended, fix the 20% as first priority!