Optimize Your Warehouse Layout with ABC AnalysisApril 1, 2020
ABC Analysis is a method of categorizing inventory by dividing products into three categories—A, B and C—in order to optimize your warehouse layout. In the fulfillment industry, ABC Analysis helps logistic providers classify and organize stock to make warehouse operations more efficient.
The ABC categorization is based on the 80/20 rule, which we covered in What Is the 80/20 Rule of Inventory. It implies that 80 percent of your sales are likely generated by about 20 percent of your products. You’re A products are those that rank in the 20th percentile.
Know Your ABCs
Before you can organize your warehouse inventory using the ABC Analysis, you need to identify the most important products based on their turnover rates:
A Category – In the scenario above, the A category includes products that take up about 20 percent of your stock, but account for 80 percent of your warehouse movements.
B Category – Your B category products take up 30 percent of your stock and about 15 percent of your warehouse movements. Items in the B category can easily move up to the A category or slip to the C category, which could alter their inventory policy. Don’t fall asleep on this category!
C Category – The C category is comprised of products that take up about 50 percent of your stock, but account for only 5 percent of total warehouse movements.
Once you’ve carried out your inventory analysis and classified your inventory into ABC categories, you can implement a strategy for your warehouse layout.
Whether your warehouse is fully automated or manually operated, the goal of this method is to reduce the travel distance and time spent searching for and moving items around the facility. Using ABC Analysis allows you to identify the SKUs being picked and transported most often (A category), and place those items in the most accessible areas of the warehouse. The items that move the least (C category), can be stored further from the frontend and outside the strike zone.
Of course, there are different ways you can reconfigure your warehouse space to implement the ABC method. You can use different rack levels, for example, and place items according to their category. Products from your A category can be placed on more accessible, or middle shelves, while your C category products can be stored on top level spaces.
The ABC Analysis allows you create and implement a strategic strategy to optimize your warehouse layout.