Master the ABC Inventory Analysis: Comprehensive and Easy-to-Follow Guide
Master ABC Inventory Analysis. Categorize products into A, B, and C classes and apply effective inventory management strategies for each. Use BoxHero to identify best-sellers and avoid stockouts. Get weekly reports to make informed decisions. Simplify inventory management with BoxHero today!
For those new to inventory management, it's common to feel overwhelmed. In this post, we'll provide beginners with valuable insights to make inventory management less daunting.
ABC Inventory Analysis -
Step 1: Understanding the Background
A company's products can be classified into "bestsellers" with the highest sales during a specific period and "steady sellers" that consistently sell well regardless of the period. Why do companies focus on these bestsellers and steady sellers? This is because a small number of products often account for the majority of a company's revenue.
Identifying revenue-generating products and developing corresponding strategies for revenue generation is crucial for companies. This enables them to prioritize the production, sales, and distribution of the products while minimizing unnecessary marketing and promotional costs for products with low order rates.
ABC Inventory Analysis - Step 2: Ranking
Now, let's divide products into categories based on the ABC analysis.
• Class B: This category consists of products that account for 15% of sales. Some products in this category may occasionally move to A or C categories.
• Class C: This category consists of products that account for 5% of sales.
In this context, "sales" refer to the calculation based on retail prices without any discounts applied. Companies tend to prioritize Class A products as a shortage of such products can significantly impact sales. Hence, inventory management should be prioritized at all times. In contrast, excessive inventory of Class C products may result in unnecessary expenses such as storage and insurance fees and therefore requires careful consideration.
ABC Inventory Analysis -
Step 3: Applying Strategies
After categorizing products into A, B, and C classes, it's crucial to implement inventory management strategies for each grade. Here are some recommended strategies for each:
• Class A: Maintaining a backup inventory is recommended as a contingency plan. It is essential to prioritize marketing budgets to safeguard sales. Additionally, the quality of the inventory should be maintained through careful management and protection.
• Class B: Although not as crucial as Class A inventory, Class B inventory still contributes to a significant portion of a company's revenue. Therefore, it's important to keep a sufficient backup to avoid stockouts. Marketing strategies may include bundling Class B products or offering them as a package deal with Class A products.
• Class C: Although Class C inventory does not account for a large portion of sales, some customers have a clear demand for these products. If they frequently go out of stock, a company may lose regular customers. If managing inventory becomes challenging, it's better to sell the product as clearance and remove it from the product list. Marketing strategies may include using them as promotional giveaway items or donating them to non-profit organizations.
The Best Inventory Management Software that Analyzes Product Sales Data
The inventory management software, BoxHero, offers a comprehensive analysis of a company's inventory, highlighting best-selling products and identifying overstocked items in long-term storage.
Sales Analysis menu in the BoxHero presents a range of metrics, including current inventory levels, total sales, turnover rate, total shipments, and total receipts for all products. Sorting by descending order of shipments, sales, or turnover rate and specifying a time period can identify the top-selling and most in-demand products.
Moreover, BoxHero provides administrators with weekly reports via email that summarize the inventory status for the previous week. The report includes products that have not been shipped in the last 30 days and products with low inventory turnover in the last 30 days. By analyzing these products, administrators can determine whether they are stagnant inventory or not.
Leverage BoxHero's inventory data analysis today to make informed business decisions.