ABC classification

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A method of ranking items held in inventory enabling particular attention to be given to those that, if incorrectly 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. In most cases Pareto's Rule then applies, so that approximately 20% of the items accounts for approximately 80% of the value of the stock held; these items are classified as Class A items. Class B covers the 30% of items that represent the next 10% of value. Class C covers the remaining 50%, which accounts for the remaining 10% of value. In material requirements planning (MRP), ranking is used to categorize inventory by its impact value, i.e. whether or not production will stop if this item is out of stock.

Subjects: Business and Management.

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