ABC Curve: the solution to your inventory problems

Looking for a way to optimize your inventory and prioritize the most profitable items? Then you need to know about the ABC Curve.

A logistics tool used for many years, the ABC Curve continues to be a great solution when deciding how to expand a business and what are the most important elements for this strategy.

Very easy to apply to almost any area of the company, it stands out when it comes to inventory management. Follow along and understand!

What is the ABC Curve?

Also known as the 80-20 curve, the ABC curve was developed based on the theory of Italian economist Vilfredo Pareto and identifies what is most relevant within a group. But why is this important?

By applying the curve, you can identify, for example, that among all the items sold in your store, 20% of them bring you more money than the other 80%. How do you do this?

Categorizing your products

The letters A, B, and C represent groups of items in your product mix. Knowing how to classify each of them is simple: choose a time period (a year, a semester, or a month, for example), multiply the value of each item you sell by the number of sales of that same product in the chosen period.

Once done, arrange the list in order from largest to smallest. You'll notice that the products at the top of the list are the most important to your business, and those at the bottom are the least important.

You probably already figured out much of this intuitively, but this method helps you calculate everything accurately, which is important when organizing and expanding your inventory.Let's refine the previous list a little further?

Calculate the percentage of each item in relation to the total of all products, dividing the total value per product by the total sales of the store.

Now just add:

• group A is made up of the first 20% of the items on your list and represents the most considerable value of items sold compared to the sales value;
• group B consists of the following 30% products;
• Group C comprises all the remaining items, which correspond to 50% of all items sold.

How to use the ABC Curve in practice

Once you've discovered the products that go with each group of letters (A, B, and C), it becomes much easier to plan your purchases.

Items in group A are the most important for your business. They attract more customers and generate more sales, allowing your inventory to rotate and you to earn more money. They are a priority when purchasing replacement goods or expanding inventory.

Those in group B are intermediaries, they require some attention, as they also help with sales, but they are not essential.

Finally, letter C. Despite being the group with the most items listed, it doesn't usually represent a large volume of revenue. If you're short on resources to replenish inventory, these products can be saved for a future purchase.

Organizing the store

By adopting this methodology in your business, you'll see that profit margins tend to increase: you'll sell more, your purchasing flow will be more organized, and even the arrangement of products in your inventory can be improved.

To ensure everything continues to run smoothly, it's crucial to use a management system. Performing manual controls is time-consuming, and even using simple logic can lead to errors that can be detrimental.

Research the best solution and purchase software to ensure controls are easier to understand, error-free, and fast.

Did you like this idea or are you already using the ABC Curve? Do you have any questions about it? Leave a comment here on the post and share your opinion with us!