To manage inventory, you can use ABC/XYZ product classification.
ABC/XYZ product classification allows you to solve the following tasks:
- Analyze inventory turnover, outflow stability.
- Improve inventory turnover indicators.
- Exclude shortage of material resources.
- Estimate goods inventory.
- Reduce enterprise costs for goods purchase and storage.
- Reduce demand in current assets.
- Forecast additional purchases.
ABC classification divides goods into three categories: A-class goods with large sales volume, B-class goods—medium sales volume; C-class—the least tradable goods.
The basic idea of XYZ analysis is to group objects by similarity of analyzed parameters (coefficient of variation). Select a parameter to analyze (for example, quantity of sold goods), determine a period and number of periods to analyze. The greater number of periods is, the more significant results are. Period cannot be less than planning horizon used in the enterprise. As a result of the analysis, all goods will be allocated to one of three classes: X-class, Y-class, Z-class. If quantity of sold goods is selected as a parameter, classification can be treated as follows: X-class is goods with high sales stability during the analyzed period. Y-class is goods with middle sales stability. Z-class is the worst selling products.
If you combine results of ABC and XYZ analysis, you will get nine groups of analysis objects. Analysis objects are grouped by two criteria: impact on final result (АВС) and stability/predictability of this result (XYZ).
Common ABC/XYZ product classification is displayed as a diagram.
ABC/XYZ product classification allows you to divide goods into the following groups:
- AX, BX are goods with high inventory turnover and stability. Ensure their constant availability, but there is no need to create surplus reserve stock. Consumption of goods that belong to this group is stable and well predictable.
- AY, BY are goods with high inventory turnover and insufficient outflow stability. As a result, you need to increase reserve stock to ensure constant goods availability.
- AZ, BZ are goods with high inventory turnover and low predictability of consumption. If you try to ensure guaranteed availability of all goods of above mentioned groups only at the expense of surplus reserve stock, then average goods stock of the enterprise will increase significantly.
- CX is a group of goods with low inventory turnover and high consumption stability. For such goods, you can use orders with constant frequency.
- CY is a group of goods with low inventory turnover and low consumption stability. For such goods, you can use orders with constant order amount (volume) and generate reserve stock based on financial capabilities of trading enterprise.
- CZ is a group of new goods, goods with variable demand, goods supplied against orders, etc. Some of them can be removed from the assortment, and the others must be regularly controlled, because illiquid and intractable inventory arise from goods of this group and trading enterprise incur losses.
ABC/XYZ product classification execution can be divided into the following steps:
- Set up ABC/XYZ classification parameters.
- Perform ABC product classification.
- Perform XYZ product classification.
- Analyze ABC/XYZ products.
General scheme of ABC/XYZ product classification execution is displayed in the diagram.
Configuring ABC/XYZ classification parameters
You should configure ABC/XYZ product classification parameters before the ABC/XYZ classification is directly performed.
Classification parameters are used for:
- ABC product classification
- XYZ product classification
You can configure ABC/XYZ classification parameters in CRM and marketing – Tools – ABC/XYZ classification of products – Full functionality – Customize – Classification parameters.
In the Classification parameters form, do the following:
- Select check boxes for indicators according to whose values ABC/XYZ classification will be performed:
- By revenue
- By gross profit
- By quantity of sold goods
- Specify period and number of periods for which data for ABC classification will be analyzed.
- Specify period and number of periods for which data for XYZ classification will be analyzed. Specify a Subperiod for ABC classification. Subperiods are compared with each other in the specified period.
You can classify sales for distribution centers in the applied solution.
To execute ABC/XYZ product classification for distribution centers, select the Calculate sales for "distribution centers" check box in classification parameters. When calculating, sales are counted from warehouses for which this distribution center (warehouse) is specified as a source of transfer by the main transport restriction.
As a rule, distribution centers are warehouses from which goods are not sold. Distribution center warehouse is a storage location from which goods are moved to separate warehouses (stores) where they are sold from. When classifying distribution center sales, sales are counted from warehouses to which the goods are moved from the distribution center. Warehouse is a distribution center if it is specified as a source of goods transfer in the main transport restrictions for other warehouses.
Central warehouse is a distribution center for retail warehouses "Retail floor" and "Electrical store". Transfer from central warehouse is used as a supply method for stores. When classifying goods of the central warehouse, sales are counted for the specified period of time at "Retail floor" and "Electrical store" warehouses.
Performing ABC/XYZ products classification
ABC/XYZ product classification is performed according to the specified classification parameters.
In the application, there are ABC product classification and XYZ product classification scheduled jobs to perform ABC/XYZ product classification. Scheduled jobs allow you to perform classification and calculation automatically according to the determined schedule.
If you cannot use scheduled jobs (for example, in 1C:Enterprise file mode) for some reasons, then you can perform product classification by using corresponding commands CRM and marketing — Tools — ABC/XYZ product classification, which is available if product classification form is in the Full functionality mode:
- Perform ABC classification for all periods to perform ABC goods classification
- Perform XYZ classification for all periods to perform XYZ products classification
You can use these commands to perform ABC and XYZ classifications independently.
Classification results are recorded to the infobase after all commands are executed.
If product classification form is in Frequently used features mode, then the Perform ABC/XYZ classification command is available.
If you change classification and calculation settings, you can do the following:
- Continue performing classification and calculation in the next periods with new settings. Classification and calculation data for the previous periods remain unchanged and do not match new settings.
- Delete data obtained with other classification and calculation parameters (if the form is in the Full functionality mode). You can delete classification and calculation results by corresponding commands in CRM and marketing — Tools — ABC/XYZ product classification:
- Clear ABC classification for all periods
- Clear XYZ classification for all periods
You can perform classification with different settings for different period at any time.
Analyzing ABC/XYZ products
To view and analyze information about well and stable sold goods and those with low inventory turnover, use the CRM and marketing — CRM and marketing reports — Assortment — ABC/XYZ analysis of products report. The report allows you to analyze summary data of ABC/XYZ product classification.
In the report, all goods are divided according to the performed АВС/XYZ classification. You can see the current goods quantity, goods cost, and revenue from sale of goods.
The Not classified group includes goods by which there were no sales during the classification period.
- All goods are grouped according to the performed АВС/XYZ classification.
- Individual inventory evaluation of goods with high turnover and sales stability (AX, BX) and goods inventory with low turnover and stability (CY, CZ).
When analyzing goods by groups, you can purchase additional goods if they belong to AX, BX groups, or you can reduce inventory (up to complete exclusion) if goods belong to CY, CZ groups.