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Is Your 3PL Optimizing Inventory Management With ABC Analysis?

Having an organized, systematic approach to inventory management is essential, particularly because it is the main driver of effective storage in a warehouse. A good use of space can save you time and money. We recommend using the ABC velocity analysis method to help you figure out where everything goes. Understanding this will help you manage your inventory investment and help your fulfillment partner optimize the space you use in your warehouse. Read on to find out how ABC can benefit your operations, as well as your bottom line.

3PL Optimizing Inventory Management With ABC AnalysisABC Categorization

Take a look at your sold inventory data and figure out how fast you’re selling or placing purchase orders to restock specific SKUs. Then categorize your SKUs into three buckets:

A – fast-moving products

B – products moving at normal speed

C – slower-moving products

While categorization of static SKUs works best with a relatively fixed SKU base, if you have a SKU base that changes frequently (like fast fashion brands), look at other factors like size or color when performing an ABC categorization. Determine which factors represent 75%, 15%, and 10% of your movement volume to apply A, B, and C classifications, respectively.

Placement in the Warehouse

Keep these things in mind:

A inventory should be placed in easily accessible locations so that picking can be as efficient as possible.

B inventory should be strategically placed near A inventory (typically in a higher vertical position). Items may not be in the most accessible locations, but still easily accessible.

C inventory can be placed in less accessible locations which can be further back, higher up or deeper in the warehouse.

Using the ABC analysis will save time on fulfillment and money on storage. Pickers will be able to quickly access the fastest moving inventory. Slow-moving product won’t be taking up space in prime picking and storage locations.

Pro Tip: Revisit your ABC analysis at least once per quarter. This way, you’ll be able to account for seasonality and position inventory according to its velocity.

Keep in mind, sometimes your fastest moving SKUs in a promotion may not even be SKUs the way your buyers look at it. Gift w/ purchase, promotional, or marketing materials may be “A items” without even being in your item master!  

Dotcom Distribution is a 3PL located in Edison, NJ. To learn more about better inventory management methods, click here to download our guide to maximizing profit here.

If you’d like to find out more about how we can help you solve a fulfillment problem in your organization, click here to contact us.

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