How is ABC analysis used in stock?

There is no person who would not hear about the famous "Pareto principle" and ABC-analysis. For the unknowing, these words are real magic, for the knowledgeable, a banal instrument. Today, I propose to talk about using ABC analysis in a warehouse, and find out how it can help in managing operations, being part of the WMS (warehouse management system). Immediately mention that the understanding of the term "ABC-analysis" for further reading is required.

With an integrated analysis of sales, ABC analysis can be carried out on a rather capacious sample: it can be half a year, a year, or a high season. When we move to the level of operations, the sample is narrowed down to days and weeks, and the question of the parameter to be analyzed becomes one of the pressing issues. Most experts prefer the volume of disposal from the warehouse (in cubic meters), someone insists on the frequency of calls (the number of shipment lines for the period in which this product is mentioned), and particularly refined personalities say that "the most important is the amount of sales" ( ). We forget about the refined ones, for this is from the category of multiplying the length of the warehouse by its width and height, and aiming at filling at least 80%. But there are also quite fans of their business who, with a glitter in their eyes, broadcast on the inferiority of ABC, and the need for XYZ analysis.

We note the last option, because on a narrow sample, XYZ analysis will give us a result close to the ABC analysis in terms of the frequency of calls (although this is not the same thing). In principle, XYZ can be completely forgotten if we add information on the standard deviation of the series for the period to the frequency analysis (this may be useful later when calculating the required margin in the recruitment zone), but I will tell you more about this later.

So, the most frequent statement that one has to hear at numerous trainings where I managed to go is “place the goods of group A closer to the gate of shipment, and the groups C - further”. Let's see why this is in most cases a terrible folly. For example, let's take the so-called “ideal warehouse”, where on one side there are docks (gates) for receiving goods, and on the other - for shipping, and between them - along the whole room, - front racks. And suppose that this warehouse accepts and ships goods only with whole pallets. We analyze at the level of household logic: the stacker took a pallet with the goods of group A, and took it to the shipping dock. The next pallet - the goods of group C - is placed on the rack closer to the acceptance dock (further from shipment). Conclusion: the path of the stacker, which it makes during placement and subsequent shipment, is equal in sum to the same path that would be done even with a “chaotic” arrangement at the discretion of the lifting and handling equipment operator. For especially boring: the only advantage is the reduction of the shipment time, but with an unambiguous increase in the time of acceptance.
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How to get the proper effect? Let's review our warehouse: we will place docks for acceptance and shipment on one front, and put the racks transversely. Of course, it has ceased to be “ideal”, but now we will carry goods from group A along the short route, and goods group C along the long route. Similarly, at shipment. So we saved on the runs of heavy machinery.

Now back to where we started. How did we classify goods by ABC, and on what basis did we conclude on the placement strategy? If we consider the above example, the sales volume - in general - will indicate the frequency of calls, because we ship only whole pallets. Problems begin a little further, if the warehouse completes orders with boxes and pieces. Here you can’t get by with one pass in all statistics - you will need to divide the goods flow into “shipment by pallets”, “shipment by boxes” and “shipment by pieces”, and in each flow you should conduct your ABC analysis - first of all, according to the frequency of calls. Thus, we will understand which group the product belongs to in the pallet, boxed and piece stream. And no one bothers us to place the pallet flow closer to the shipping dock, but what happens if we place an equally popular piece and box flow right under it? Everything is simple: with an increase in the intensity of the load, the equipment and employees will begin to “push” in the same areas, which will lead to a decrease in productivity. That is why the central alley for pickers is placed farther from the gate of shipment, and unpopular box and unit flow goods are placed under popular pallet goods, ensuring uniform distribution of load across the alleys and zones. Group A of the boxed / piece stream (if they are combined in the same area, and the pieces are not placed on a separate level with shelves) it makes sense to place to the right and left of the central “picking” alley. Its width should be sufficient to allow several order pickers to pass each other freely, and we, in such a simple way, would get the proper level of ergonomics and productivity.

And - I ask you to pay attention - in this case, group A of the boxed / piece stream is not at all located at the shipping docks, as some "logistics log gurus" assert to us. In addition, I can only say that an attempt to make a classic ABC analysis for a multi-item warehouse of a retailer of household appliances (as well as a number of other industry trends) will lead to a complete fiasco: Group A can take 50% of the total sample. That is why this tool should be used exclusively with the mind, and better - in dialogue with professionals.