ABC principles in warehouse management and storage systems

The ABC principle in warehouse management is applied to help classify warehouse items according to priority for monitoring and management. Products will be divided into 3 groups A, B and C based on criteria of revenue contribution and importance. So what is the ABC principle? Let's find out with 1C Vietnam below.

1. What is the ABC principle in warehouse management?

The ABC principle in warehouse management is a method that uses criteria about the value of goods and their importance to businesses to classify goods into 3 groups A, B and C. From there, businesses will provide appropriate management plans for each group to maximize item value and reduce resource waste.

2. Benefits when businesses apply ABC principles

The ABC principle in warehouse management is applied by many businesses in warehouse management thanks to the following benefits:

• Save warehouse space: Businesses can easily identify groups of goods that are in great demand and prioritize processing in order. From there, the business will come up with a diagram to arrange the warehouse so that it is most convenient for the operation process.
• Accurate forecasting of inventory: Based on the ABC principle, businesses can track and observe demand for each specific product group. By collecting the right data, managers can make accurate sales forecasts, helping to boost revenue and profits for the business.
• Flexible staff allocation: When forecasting demand for a specific product group, managers can flexibly allocate staff between groups to ensure the highest working efficiency.

• Improve the quality of customer care service: Applying ABC principles in warehouse management helps businesses understand which product groups have the highest demand. From there, businesses can focus on providing adequate goods to satisfy and retain customers of that group.
• Data collection: Goods classification helps collect data scientifically and brings more meaning to businesses in predicting demand, controlling waste as well as making adjustments and improvements.
• Good management of high-value product groups: Products classified in group A are often considered the strategic product group of the business. Correct classification will help managers ensure there are always enough products to serve customers.
• Optimize warehouse: When applying the ABC principle, businesses can optimize warehouse for products that bring high profits and value.
• Minimize supply: Determining the demand for each group of goods helps businesses decide whether to consolidate supply sources or just source goods from a single source. This is to save costs and simplify business operations.

3. Instructions for classifying goods according to the ABC principle

To be able to use the ABC principle in effective warehouse management, businesses need to properly classify goods into groups A, B and C. Administrators can use the formula of annual revenue divided by Corresponding costs to calculate the profit of each type of item. From there, the person in charge will classify goods into groups according to the profit contribution value from high to low. For each specific product group, businesses need to have different strategies to focus resources effectively.

If a business does not have much experience with classification, it can use Excel as a support tool through the following specific steps:

• List and arrange product items in the warehouse and arrange them in descending order of use value.
• Use the Excel function to calculate the total value of each product type.
• Classify goods into groups A, B, C according to calculated results.

4. How to develop products according to each ABC group

The ABC principle in warehouse management will be most effective when businesses have appropriate development strategies for each product group. The following are some notes in the process of developing a management plan for each product group A, B, C.

4.1 Group A products

Products in group A are usually core items, providing 80% of the company's business results. To effectively manage this product group, businesses can apply some of the following strategies:

• Develop a quantity control plan to minimize the risk of goods theft. Because group A items often have extremely high value, this is also a group of goods that carries many risks of theft and damage.
• Product group A often has high demand, so businesses are required to store a certain amount in stock. In addition, managers also need to calculate when all products are consumed to import new ones.
• The marketing department needs to prioritize marketing group A products in the company's advertising campaigns.

The above strategies help businesses effectively manage group A goods, while promoting business activities as well as increasing customers' purchasing power.

4.2 Group B products

Products in group B have lower value than group A, often contributing only average revenue. However, in many cases, type B goods can be flexibly moved, upgraded to group A goods or reduced in value to group C to meet the supply shortage.

Based on the nature of product group B, businesses can refer to some management strategies below:

• Group B goods also need to have a certain amount of inventory in the warehouse because items in this group can potentially be transferred to group A. The amount of inventory needs to be monitored and updated regularly to avoid shortages.
• Group B items can be sold as complementary products to group A items to increase sales and recognition.
• For items from group B that repeatedly lose value to group C, businesses should consider using management strategies for group C to avoid wasting resources.

4.3 Group C products

According to the ABC principle in warehouse management, group C items have the lowest value in the system. This product group has slow consumption and only contributes a very small part to the total revenue of the business. Many businesses also call group C items slow-selling goods or inventory.

In many cases where businesses apply the correct management strategy, items in group C are still able to generate revenue:

• Businesses can implement a discount strategy for group C items.
• Group C products can be used as freebies or promotions for group A products. From there, businesses can both stimulate purchasing demand and improve inventory problems.
• Businesses can also use group C goods for charitable purposes to help increase awareness and improve brand image.
• Provide a specific strategy for importing group C goods, importing enough goods within control to avoid unnecessary storage costs.

5. Limitations of ABC rules in warehouse management

According to the ABC principle, goods are classified in a fairly simple way so that supervisors can manage one way. However, because of that simple process, this option may have certain limitations as follows:

• Loss of flexibility in warehouse management: The buyer market is constantly changing, and customer demand for products is also very difficult to grasp. At times, some items from group C can be moved to group A. Therefore, this principle can prevent businesses from coming up with timely response plans, leading to missed many business opportunities. .
• The job of classifying goods takes a lot of time: To be able to classify goods into groups A, B, C accurately, businesses must spend a lot of effort on overall management. With this traditional method, the company's interests may be affected.
• Traditional classification principles are not suitable for large production and business models and many complex product categories.

Those are the limitations of the ABC principle in warehouse management that businesses need to consider before applying this method. To overcome those limitations and difficulties, businesses completely use modern software to automate warehouse management more effectively and accurately.

6. 1C:Company Management software supports simple and accurate warehouse management

1C:Company Management software is an open solution with flexible features to automate business management in many different models. All features are appropriate and customized according to the specific requirements of each business, to ensure the most convenience for users.

The solution is capable of connecting all Sales - Purchasing - Production - Warehouse - Finance - Human Resources and Payroll - CRM departments on a single software system to help businesses save time, costs and increase revenue. up to 60% operating capacity.

1C:Company Management software supports effective warehouse management

1C:Company Management software is fully equipped with necessary features for automatic warehouse management, effectively supporting businesses in classifying and managing goods:

• Calculating cost of materials: Software supports calculating cost of materials. From there, businesses can easily make reports, understand the value of each category of goods and arrange them into appropriate groups.
• Set inventory limits: Managers can set minimum and maximum inventory values to limit excess materials, capital stagnation or waste of storage resources.
• Managing material information in the warehouse: 1C:Company Management allows full storage of data related to goods such as characteristics, product lines, series, etc. This helps businesses easily classify goods into categories. Groups A, B, C when necessary.
• Creating warehouse documents: The software has the ability to create documents such as export of materials, warehouse slips, inventory, transfer of materials, etc. All are stored on the system to help the retrieval and storage process. Quick processing.
• Inventorying goods, recording increases and decreases: Supports quick inventory activities through the software system. Users can easily track and update the exact quantity of goods with just a few simple steps, thereby knowing what goods are surplus or lacking,... to promptly come up with a handling plan.

ABC principles in warehouse management are applied to support the classification and management of each specific product group in the enterprise. However, this principle still has certain limitations. To solve the above problem, businesses can use modern warehouse management software such as 1C:Company Management. Contact 1C Vietnam immediately for consulting support on effective warehouse management solutions for businesses.