Benefits of the ABC Method in Cycle Counting

You may have heard about one part of the cycle counting system known as the ABCs. While the ABC classification method is not the only cycle counting strategy around, it is definitely one of the most widely used systems thanks to its simplicity and application.

What is the ABC Method?

The ABC method is simply a way of organizing the products in your warehouse for tracking throughout your inventory cycle. Other methods include random sampling and reductive random sampling.

How does the ABC Method Work?

The idea behind the ABC method is that you break down your product list into three categories.

• The A category is made up of your highest dollar and fastest moving products. You determine the threshold for this category, but many companies put the top 20% products by velocity on this list.
• The C category is made up of your lowest performing items. Again, this is usually the bottom 15-20% of items that move through your warehouse by velocity.
• The B category is made up of everything else.

The items in the A category will be counted most frequently, usually once a month or once a quarter, but sometimes even once each day, or every few days. The items in the C category will be counted less frequently, such as once every six months or once a year. Meanwhile, the items in category B will be counted less frequently than A parts but more often than C parts. The exact frequencies for each bucket really depend on how many different parts you have and how often you need to count them in order to maintain accuracy.

Why Choose the ABC Method?

In general, companies choose the ABC method because it offers greater customization than the random sample method. In a true random sample, you never know which items you'll be counting each day, and there is a possibility that some items will be skipped over for long periods of time. Even if you use a reductive random sample, in which items are removed from the list after they're counted so they won't be chosen again until the next cycle begins, now your highest valued items are still being counted once per cycle. The ABC method gives you the ability to put more emphasis on the most important products and less emphasis on those items that don't change frequently enough to merit extra attention.

The ABC method of cycle counting is the most popular method today because it provides more information about the things that matter most. It also gives you the opportunity to change the focus of your inventory as product trends come and go.