ABC Analysis - Logistics

5.7. ABC analysis

In logistics, ABC analysis is used to set the goal of reducing inventory, reducing the number of moves in a warehouse, and also pursuing other goals.

Management in logistics is characterized, as a rule, by the presence of a large number of homogeneous management objects that affect the result of the enterprise's activities in different ways. For example, managing stocks of enterprises in the spheres of production and circulation, sometimes you have to make decisions on tens of thousands of items of the assortment. At the same time, different items of the assortment deserve different attention, since from the point of view of the contribution to a particular result of trade or production activity they are not equivalent.

The idea of ​​ ABC is to select the most significant ones from the whole set of similar objects from the point of view of the designated goal. Such objects, as a rule, are few, and on them it is necessary to concentrate the basic attention and forces.

In the economy, the so-called Pareto rule (20/80) is widely known, according to which only a fifth (20%) of the total number of objects that are usually dealt with gives about 80% of the results of this case. The contribution of the remaining 80% of the objects is only 20% of the total result.

For example, in trade, 20% of goods names give, as a rule, 80% of the company's profits, the remaining 80% of the names of goods - only a necessary addition, mandatory assortment. Of the total number of enterprise suppliers, only 20% create 80% of the total risk of losses from links with an unfair counterpart. There are other examples.

The Pareto rule acts not only in the economy. If we divide all the students of the university stream on the basis of the complexity of management, it turns out that 20% of the stream students create 80% of all the efforts of the dean's office. It is said that 20% of all beer lovers drink 80% of all beer. Approximately 20% of the textbook material can allow to form 80% of the idea of ​​the course being studied.

Americans call this rule the "thumb rule": the raised right thumb symbolizes these very 20% of the shock objects, while the four fingers that are compressed into a fist designate the significance of the finger raised upwards - 80%.

The essence of the Pareto rule is that in the process of achieving a goal it is irrational to give objects that form a small part of the contribution, the same attention as to objects of primary importance.

According to the Pareto rule, the set of controllable objects is divided into two unequal parts.

Widely used in logistics ABC method provides a deeper division - into three parts. The average statistical distribution has the form shown in Table. 4.

Table 4

Exemplary mean statistical percentages of groups A, B and C

Group

Percentage of management objects,%

Share as a result,%

A

20

80

In

30

15

C

50

5

The general algorithm for conducting ABC analysis is given in Table. 5.

Table 5

ABC Analysis Procedure

The first, key step in the ABC analysis is to determine the purpose of the analysis. The same set of control objects will be divided into subsets A, B and C in different ways, depending on the purpose of the analysis.

For example, in the process of managing the many thousands of stores of a wholesaler using an ABC-analysis, the following tasks can be solved:

o reduction in the amount of inventory;

o Reduction in the number of moves in the warehouse

o Reduction of theft of wealth.

Let's briefly dwell on the characteristics of each of the tasks.

Setting the goal of reducing the stock of the trading company, it is necessary to allocate an assortment, which accounts for the bulk of sales. Most likely, it will be a small group of "grossing" positions. Ordering these positions from the suppliers of the company should be as often as possible in small batches. Positions - outsiders of the list of goods, built on the basis of the "share in sales", can be ordered much less often. Following this rule will significantly reduce the company's reserves and, accordingly, the cost of their maintenance.

The main risk of theft in the warehouse of the same company also falls on a small group of assortment. However, the composition of this group differs from the composition of "grossing" group. This group also needs strict control, but of a different plan: frequent inventory, placement in special cells, stacking in the upper tiers of the shelves, which makes it difficult to steal, etc.

The management of highly efficient warehouses pays much attention to the problem of unnecessary movements in the warehouse. Any housewife, having in the kitchen a large list of various items, so they have to reduce the movement to a minimum. The goal is to save forces and time, i.e. resource, which is always in short supply. Acquaintance with domestic warehouses testifies that this in the good sense of the word "kitchen harmony" often not. The dimensions of the warehouses are such that the placement errors lead to tens of kilometers per day of unnecessary movements, often well-paid. We will divide the assortment of the warehouse on the basis of the occurrence of the position in the shipping invoices. Most of the occurrence, as well as in the first two cases, will fall on an insignificant part of the assortment. Avoid overspending of the movement resource, if you place this assortment in the so-called hot zones, i.e. in the zones most conveniently located relative to the place of goods release. It should be noted that this shock the composition group will not completely coincide with the grossing group, or with a group that is dangerous from the point of view of theft.

The second step in the ABC analysis is the identification of control objects analyzed by the ABC method. In the above example, such an object is a separate assortment item. However, other objects can be chosen to solve the above tasks. For example, you can reduce inventory in a warehouse, paying particular attention to working with suppliers, which account for the bulk of the warehouse stock. In this case, the control object will be the suppliers, the attribute on the basis of which the suppliers will be classified (step 3 of the algorithm), - the share of the stock of goods in the warehouse received from this supplier.

After the classification criterion is determined, each of the objects (assortment item, vendor, etc.) is evaluated according to the intended characteristic (step 4). Then, the control objects are grouped in descending order of the selected attribute (step 5). The upper, insignificant part of the ordered list will play a key role in terms of the intended goal.

Divide ordered by descending order list into groups A, B and C in the proportion shown in Table. 6, is not always possible. The generally known rule 20/80 is an average ratio and for the separation of a specific nomenclature in most cases is not suitable. Let's assume, for example, that 8% of the gross-forming nomenclature yields 80% of turnover, and 20% - 96% of turnover. As in this case, do you include 20% of the nomenclature in group A, or limit it to 8%?

You can solve this problem graphically by building an ABC analysis curve. The solution method is considered in the next paragraph.

thematic pictures

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)