This is a method discovered by an Italian Vilfred pareto between (1848-1923), he discovered that in inventory there is a common statistical effects, some of the findings were that 80 percent value of wealth of a nation is controlled by only 20 percent of population. In inventory, he discovered that 20 percent of items in the store account for 80 percent of the whole value of the stocks while the remaining 80 percent of stock only accounts for 15 and 5 percent of the value of the entire stock. He classified them into the category of ABC in respect of their value and quantity (volumes) as illustrated by the following table:
Description Volume Value
Class A items 20% 80%
Class B items 50% 15%
Class C items 30% 5%
The main purpose of this tool is to enable the inventory personnel to develop strategies and tactics of how to manage the stocks. Some of these strategies include:
Class A Items
These are items which are few in the store (20%) but of high value (80%), the inventory personnel needs to;
- Keep a close day-to-day control
- Keep them at minimal level
- Liaise with purchasing department in order to have a standing order with the supplier.
- Introduce the Vendor Managed Technique
- Keep them within visibility but out of bound to non personnel e.g. lock them.
Class B Items
These are items whose volume is approximately 30 percent of items and whose value is only 15 percent.
Class C items
These carry the biggest volume and varieties in the store but whose value is only an average of 5 percent. In both class B and C the varieties are many and in big volumes, the inventory personnel needs to ensure that:
- The levels of stock are not very low as both items are very much frequently used.
- The items are well grouped in their respective purpose of use. This is to reduce time wasted when issuing them.
- For most fast moving items they need to be placed next to issuing bay.
- Implement standardization of inventory in order to reduce variety.