ABC Inventory System
What is the ABC Inventory System?
The ABC inventory system is an inventory system designed to give control over inventory with less effort.
![abc1](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc1.jpg)
How it Works
With traditional inventory control, the business needs to count each and every item in their inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc2.jpg)
The provides an extremely accurate tally of inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc3.jpg)
However, it’s a time consuming and arduous task and is probably overkill for the business’s needs.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc4.jpg)
To control inventory, a business may only need to check the behavior of a small but highly significant segment of that inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc5.jpg)
The ABC inventory system is designed to help a business achieve this.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc6.jpg)
How to Set Up an ABC Inventory System
With this system, you set up a spread sheet and rank inventory by significance.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc7.jpg)
You begin by identifying those inventory items that have least significance on the inventory as a whole.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc8.jpg)
This segment is often quite large.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc9.jpg)
Designate stock items in this segment with a C.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc10.jpg)
After this, identify the segment that has next greatest significance.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc11.jpg)
Designate these items with a B.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc12.jpg)
This leaves relatively few items.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc13.jpg)
These should be of high value or significance to the total inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc14.jpg)
Designate these items with an A.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc15.jpg)
By ranking inventory in this manner, you get a sense of how you should check and control your inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc16.jpg)
This allows you to formulate an appropriate stock take schedule.
![](https://seeaccountingnow.online/wp-content/uploads/2020/03/abc17.jpg)
© R.J. Hickman 2020