The classic ABC classification is a good way to segregate your product ranges into 3 or 4 buckets viz. A(Hot Sellers), B (Medium Sellers) , C (Slow Movers) and sometimes D (Non movers). It helps you manage the inventory better by sufficiently stocking up and planning for your fast movers and taking a reactive approach on your B products while looking to reduce or phase out your C & D products.
In theory it works fine,but in practice more variability is involved. A product which is an "A" may become a "B" or "C" depending or season or other changes in trends. Even within these classifications products would exhibit different patterns, some products would have a steady predictable demands making them earlier to plan and stock up while other may have medium to high fluctuations in their demand. Such volatile products would require a closer monitoring and tracking to avoid nasty surprises.
Which is why modern inventory management tools uses ABC XYZ classification. Where XYZ is the classification of the variability of forecastability of the products. Class "X" represents stable demand products which can be forecasted with a high degree of confidence. "Y" products have medium volatility or fluctuations in their demand and are difficult to forecast accurately and finally "Z" class products are highly volatile with not so reliable forecasts.
SKULogi dynamically classifies the products based on both ABC & XYZ and produces a matrix as shown below. The classification gets updated automatically to reflect changes in trends of products sales.
These are fast move SKUs with fairly stable demands, however do monitor them regularly as they are critical for your business, keep a good amount of safety stock.
These are high value SKUs but with some fluctuations in demands. Monitor them VERY closely. Keep large % of safety stock.
These are high value SKUs but with lot of fluctuations in demands. Monitor them VERY closely. Keep large % of safety stock.
These are medium selling SKUs with fairly stable demands. Monitor them periodically. Keep only a small buffer of safety stock.
These are medium selling SKUs with some fluctuations , do monitor them closely as they are critical for your business, keep a good amount of safety stock.
These are medium selling SKUs with lot of fluctuations in demand , do monitor them closely as they are critical for your business, keep a good amount of safety stock.
These are low value SKUs but with fairly stable in demands. Monitor them periodically. Keep only a small buffer of safety stock.
These are low value SKUs with some fluctuations in demands. Don't waste your time monitoring their demands. Try to move them to higher category by bundling with fast moving products or with promos.
These are low value SKUs with high fluctuations in demands. Don't waste your time monitoring their demands. Evaluate if these are still essential for your business, if not churn them out.
It can be quite tricky to remember these classifications hence we have color coded them based on the amount of focus and attention required on these products.
RED : AY & AZ are coded red.Pay most of your attention to this group of products. These are your high value products but with medium to high volatility, these products should get your maximum focus.
AMBER : AX, BY and BZ are coded amber. Pay medium attention on these.These are your medium sellers but with volatility. AX class ( high seller with stable demands) is also included in this group as its good to pay frequent attention to your top sellers even if their demands are fairly stable and predictable.
GREEN : BX and CX are coded green. You can relax on these products and check on the infrequently. These are low and medium sellers but with stable demands.
GREY: CY & CZ are coded Grey. These are low value products with fluctuating demands. Don't waste your time trying to manage their inventory. Explore if these can be phased out of if they are still essential for your business, try to move them up to higher category by use or strategies like promos or bundling.
The SKU Matrix is clickable and provides a description and hint on the product class and also a link to quickly filter and view the SKUs belonging to each of the class.
On clicking the View SKUs link you are taken to the product overview screen with filter on the selected product class.
The class of a product is also shown for each SKU in the product and inventory overview screens for easy of reference.Hovering the mouse on top of the product class display its description.
|Disclaimer : The product classifications and hints are there to aid your decision making. These may not be directly applicable for certain niche markets like spare-parts or pharma. You are the expert who knows the background and inner workings of your business and market. Take your inventory management decision combining all these factors.|