What does the "ABC method" refer to in inventory management?

The "ABC method" in inventory management is a technique used to categorize inventory items based on their significance, taking into consideration factors such as usage and value. This method divides inventory into three categories: A, B, and C.

Items classified as A are the most valuable and typically represent a small percentage of the total inventory, yet they account for a large portion of the total inventory value. These items require careful management and control to optimize their availability and minimize stockouts.

B items are of moderate value and importance, while C items are the least valuable and often make up the majority of the inventory but contribute the least to overall value. By focusing on the categorization of items in this way, businesses can allocate resources more efficiently and prioritize their management efforts, ensuring that critical items are always available while keeping cost management in balance.

This method is widely accepted in inventory management as it enhances decision-making processes related to restocking, inventory turnover, and capital allocation. It allows for a more strategic approach to handling different types of stock, optimizing overall inventory management efficiency.