Written by Ruvisha Pillay | Contributors: Sophie Ingram, Chantelle Ferreiro, Svea Schmidt

We know that stocked items may be a complex category. Primary classification is not enough. We need to split it even more to make our planning decisions both efficient and effective.

We can get a further breakdown within the app by using a dual ranking movement. The app looks at the forecasted value items are going to bring in (or the historic value that the items have brought in), and the forecasted number of units that items are going to sell (or the historic number units that the items have sold). From this date, the below matrix is derived. You can view this matrix by going to the “Classification” option on the left pane of your screen, and clicking on the “matrix” tab.

ABC - this refers to value (forecasted or historic). For each item to fall into a specific bucket, the app looks at the average forecasted value items are going to bring in (or the historic value that the items have brought in) and those items are ranked from highest to lowest value. “A” representing the items with the highest forecasted value and “C” representing the items with the lowest forecasted value. Usually, the "A" items contribute to the top 80% of the sales value, the "B" items contribute to the next 16% and the rest are "C" items. In other words, with all of your "A" items combined you achieve 80% of your purchase turnover (based on average costs and forecast/history). Keep in mind, those "A" items are often less than 20% of your total items. These percentages can be changed under Settings → Classification.

HML - this refers to the movement of units (forecasted or historic). The app looks at the average forecasted number of units that items are going to sell (or the historic number units that the items have sold). Those items that are ranked from fastest to slowest. The top 80% are your fast movers, the “H” items and they fly off the shelf. The “M” items are the next 16% which move at a moderate pace. The rest of the items are the “L” items (4%) and these are your slowest movers. That makes up your low, medium and high categories. These percentages can be changed under Settings → Classification.

Once that ranking is done, every single one of your items will fall into one of the buckets shown in the image of the matrix.

On the top row you will see the A items which are high value, some are slow moving and expensive and some are fast moving and expensive. Then you have the row at the bottom, some items are slow moving and inexpensive, while others are fast moving and inexpensive. Here are some examples which will give you an idea of how to interpret this.

AH - mobile phones. It sells fast and it brings in a lot of money.

AL – unique, crystal salad bowl. It also brings in a lot of money, but they do not sell very often.

CH – drinking straws. It sells fast but they don’t bring in a lot of money.

CL – a pen with brown ink. It’s cheap but it will move slowly because it’s not commonly used.

So what does all of this mean for you for your planning and buying strategy? How do we use this? Well, after our items have been classified, the app will show us these buckets and give us useful information about each one such as the count of unique items in each bucket, stock value, the average monthly demand and fill percentage by clicking on each of those tabs. Note: If the classification rules have been set up to look at historical sales instead of forecasted sales, you would have a C.O.S tab instead of the demand tab.

History:

Forecast:

This information can then be used to set up (or review and revise) your inventory policy settings i.e. replenishment cycle and target fill rate.

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