Using ABC to Weed and Feed

Many readers will be familiar with the ABC inventory analysis tool. In this application, which is not related to activity-based costing, managers 

A Develop alliances or partnerships Negotiatefor demand-driven supply chain Reduce lead-times Cost reduction incentives Add business Negotiate consigned or demand-driven supply chain Reduce lead-times Focus on A SKUs Move B C items to other suppliers Reduce lead-times 

B Develop alliances or partnerships Pursue supplier-imnaged inventory Add business to supplier Transfer to distributor Find A or B supplier Transfer to distributor Eliminate SKU 

C Consolidate demand Apply activity costing Give more C SKLTs Eliminate SKU Consolidate demand Substitute SKU s Transfer to distributor Eliminate SKU Consolidate demand Substitute SKU s Transfer to distributor 

The ABC analysis sorts the bill of material (BOM) components for manufacturers or stockkeeping units (SKUs) for distributors. The purpose is to set priorities for focused management attention on improvement. While the most common criterion is related to cost, there are many other ways to select A, B, and C components or SKUs. For example, a manufacturer might select customized components as A items despite their cost. 

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