Segmentation and ABC

Trash your ABC classification! And do yourself a favor - start over again.

The ABC classification was formulated about fifty+ years ago as a folksy tool to monitor inventory for spend allocation and for cycle counting.

Now it has outlived its purpose and actually perhaps has caused harm for business users as it has been pushed up the chain for commercial users and S&OP. ABC is one dimensional - volume and cost and that too not even COGS. In many cases just direct material cost.



Does not consider any other attributes such as margins, demand volatility, frequency, velocity, or distribution to be considered a valid metric. Segmenting SKUs by ABC may result in suboptimal business decisions even for the Supply chain folks Are you blindly following this just because It has been handed down for generations? Think again. 


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