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E1: 41: ABC Analysis (R4164) (Doc ID 625468.1)

Last updated on MARCH 12, 2021

Applies to:

JD Edwards EnterpriseOne Inventory Management - Version XE and later
Information in this document applies to any platform.

Purpose

Overview

ABC analysis is a very useful and relatively simple method for classifying and analyzing inventory. The method of analysis is based on observations first publicized by Vilfredo Pareto in Italy in the 19th century. Pareto observed that roughly 90% of the wealth in Italy, at that time, was held by 10% of the population. This imbalance has since been discovered in many other situations in life, both natural and man-made. It is sometimes referred to as the 90-10 rule, the 80-20 rule, or as Pareto's Law.

With respect to inventory, Pareto's Law has shown, with uncanny consistency that close to 80% of the value of total inventory is represented by 20% of the items. Although many deviations are possible, a rule of thumb is to identify the top 20% of the items as "A," the next 30% as "B," and the bottom 50% as "C."

EnterpriseOne Inventory Management system allows the user to identify A, B, and C items using three different sets of criteria. Total sales, gross margin, and on-hand inventory value all exhibits the traits expressed in Pareto's Law.

There are many ways in which the ABC classification may be used to help manage inventories. The common theme of the classification is the concept of degree of control. It is common sense that managers should be more concerned with the costly few as opposed to the trivial many.

Some of the ways that ABC classifications can be used include:

Scope

 An overview of ABC Analysis theory and how it is applied within EnterpriseOne software.

Details

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In this Document
Purpose
Scope
Details
 EnterpriseOne ABC Functionality
 Setup
 Running the ABC Analysis (R4164)
References

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