ABC classification: focus counting effort on the items that matter
A few items hold most of the stock value. Rank items into A, B and C classes by value, count A items often and C items rarely, and save effort while controlling risk.
A warehouse with 1,000 items does not need to give every item the same attention. Losing one screw and losing one electric motor have very different consequences, yet at year-end they take about the same counting time. The idea behind ABC classification is plain: sort items into three bands by value, count the valuable ones often and the cheap ones rarely, and you save effort while keeping the main risk under control.
Step one: work out the value of each item
For planning counts, the usual basis is stock value: quantity on hand multiplied by unit cost. If you care more about how fast items move, you can rank by annual issue value instead. The two bases may give different results, so choose one, keep it fixed and write on the sheet which one you used.
Export quantities and costs for all items from 1C, Excel or your ERP and add a "value" column. Use one currency and one costing method, or the ranking will mislead. Check the export first as well: negative quantities, zero costs and duplicate rows distort the ranking, so clean them before sorting.
Step two: rank, accumulate, draw the lines
Sort by value from largest to smallest, calculate the cumulative share and draw two lines. A common split is that the first 70 to 80 percent of cumulative value is class A, the next 15 to 20 percent is class B and the rest is class C. These shares are a convention, not a law, and can be adjusted to your situation.
Suppose a company has 1,000 items with total stock value of 10 billion UZS:
- Class A: 80 items, 7.2 billion, 72 percent of value.
- Class B: 220 items, 2.1 billion, 21 percent.
- Class C: 700 items, 0.7 billion, 7 percent.
(Illustrative figures.) The top five items might be worth 600, 500, 450, 400 and 380 million, together 2.33 billion, already 23 percent of the total. In other words, 8 percent of the items hold more than seven tenths of the value, while 70 percent of the items together hold only 7 percent. Spreading effort evenly over all 1,000 is clearly not the best use of time.
Step three: set the counting frequency
One common arrangement:
- Class A: counted monthly, or every two weeks for items of exceptional value.
- Class B: counted quarterly.
- Class C: counted once a year, or together with the year-end count.
In the example, the average monthly workload is 80 A items, 220 ÷ 3 ≈ 73 B items and 700 ÷ 12 ≈ 58 C items, about 211 in all, instead of 1,000 at one sitting. Spread over working days, that is roughly ten items a day. The daily workload becomes predictable and no longer piles up at year-end.
Count A items more carefully: two people count separately, any mismatch is rechecked on the spot and the last month's documents are compared. For C items a quantity check by one person is enough.
Some items deserve a higher frequency whatever their value: small, expensive items that are easy to take (electronic components, copper wire), goods with expiry dates, items that often show negative stock or mismatches, and critical spare parts.
Where this method goes wrong
- Looking at value only: C items come in large quantities, and a book error of a few thousand pieces is not trivial. Count them at least once a year. "Never counted" is not an option.
- Classifying once and forgetting: values change, new items arrive and old ones retire. Recalculate at least yearly.
- Inaccurate costs: out-of-date prices or mixed currencies distort the ranking.
- Controlling quantities but not places: where class A items are kept and who can reach them need control as well.
Linking with the year-end count
Many head offices and auditors still expect a broad count at year-end. ABC classification can give that count a sharper focus: all A items, most B items, a sample of C items, plus the year's cycle-count records. Keep the A-item count records safe; they are the main evidence to head office that control worked all year. Confirm with head office and the auditor beforehand whether this approach is accepted.
In short
ABC classification is not complicated; the hard part is keeping it up. UzWarehouse carries out year-end and quarterly counts and can help you classify items by value, draw up a counting plan that fits your business and compare the results with your books.