ABC “Analysis”.
ABC Analysis
Over 100 years ago, Vilfredo Pareto made the statement that twenty percent of the population owned 80 percent of the property in Italy. In 1940, Joseph Juran, a mechanical engineer, reapplied Paretos principle. In doing so, he created Pareto analysis or ABC analysis. Juran said that by using this analysis you could separate the vital few from the trivial many. Managers use this analysis today to prioritize tasks by those that are of most worth.
How To Use ABC Analysis: Sallys Grocery Store
While ABC analysis can be used for many different things, we are going to look at it from an inventory perspective. To better understand this tool, we are going to talk about Sally who owns a grocery store. She is fairly profitable, but would like to focus on the items that create more revenue. As you work this analysis, I will refer back to Sallys grocery store, and how her analysis went.
Proving the Pareto principle, we can see that although you may have a small amount of a certain item, it may create the largest amount of revenue.
Read more here
