The ABC curve is a method that aims to organize inventory based on the value of a business's items, increasing savings and profitability in the sector.
Since good inventory management is the economic heart of any retail business, this device becomes important for the efficiency of the operation.
Using this concept in inventory control helps companies prioritize what really matters.
In practice, this translates into more optimized operations and clearer information for better decision making.
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What is the ABC curve?
The ABC curve is a method of analysis that involves categorizing items according to their value. It is commonly used in inventory control , although it has other applications.
In practice, the ABC curve helps companies identify the most valuable products (relative to customer demand).
The goal of the ABC curve is to save time in inventory spain whatsapp data management, as well as reduce storage costs, by directing the focus of the team and most of the resources to the items that have the greatest added value for the business.
In this way, it is also possible to reduce obsolete stock and design more effective strategies to increase sales.
The ABC curve classifies a company's inventory items according to their value (which is made up of several criteria, such as demand, cost, and risk).
With this data in hand, those responsible for the sector can group the articles into different classes (called A, B and C, respectively).
How does the ABC curve work?
The ABC curve works by assuming that not all items in a company's inventory have the same value.
Some cost more to buy, others are sold more frequently, so it is necessary to allocate acquisition investments to the most important items in the composition of income.
In other words, prioritize crucial products to keep your cash flow in the green and understand which commoditized solutions cost a lot but require time to replenish stock.
This way, you can efficiently manage your inventory (and even your entire financial planning, from production to pricing strategy) based on sales metrics.
This reduces the chances of stranded stocks and losses for the company.
It is a method that offers a broader view of the entire scenario in relation to your sales: from best to worst.
However, to achieve this, the ABC curve relies on a stock classification method that divides stocks into three categories (A, B, and C), in descending order of value, as we saw in our fictional example.
Each of the categories is considered as follows:
Curve A: Most important products
Category A refers to items of higher value in terms of consumption (considering a one-year period).
Items are considered to account for 20% of what you have in stock, but they represent up to 80% of your income.
Curve B: intermediate products (or of medium importance)
Category B refers to medium-value items: items here account for around 30% of your stock and, when sold, are responsible for 15% of your revenue.
Curve C: less important products
Finally, we have the column with the lowest values: they correspond to 50% of the items in stock, but at the end of the year they represent only 5% of sales revenue.
Benefits of using this analysis method
Applying the ABC curve to inventory management can transform your business. Do you want to know how it is possible, in practice?
We explain some of the main benefits of implementing the method:
Greater profitability
By monitoring and collecting data on your products, you'll get a better idea of what customers are most in demand for.