Classifying your inventory allows you to focus on the right stock to meet demand, which helps you retain customers and remain competitive.
Consumers across the US today have increased their spending! There is a glimpse of optimism across businesses as the US economy experiences this upturn. In a recent article in the New York Times, “consumer spending rose 2.6 percent in the first three months of the year, with a 5.4 percent increase in spending on goods accounting for most of the growth.” With this in mind, you should allocate and focus on the stock items that align with your customer’s demand.
While consumer demand will play a vital role in helping to restore economies globally, inventory planners and management teams will still need to navigate erratic demand when planning their stock replenishment. The World Economic Forum states, “…the uneven impact of the pandemic means there won’t be a single uniform consumer spending recovery; rather there will be many different recoveries based on circumstances, geographies, age, and income.”
Whether you are experiencing an increase in demand or not, effective demand planning requires organizational skills and a focus on the right inventory to support your sales objectives.
As an inventory planner, you should:
- review your inventory data and adjust your planning, where possible, to reduce your inventory and improve your fill rate.
- have clear insights into your inventory key performance indicators (KPIs).
- classify your inventory to help you forecast more accurately and avoid experiencing excess inventory or potential stock-outs.
How many times have you found yourself in this scenario?
You have an active inventory list of over 6,000 lines and a total of about 20 000 SKU’s. Are you able to identify high-priority items? Do you know which items to reorder? Which items are sitting in excess? But, more importantly, do you know what items need attention right now?
Allocate your working capital towards inventory that will give you a high return on investment.
Based on the Pareto principle, the ABC analysis looks at classifying your items so you can focus on the 20% of the items that will give you 80% of your sales.
When applying the ABC analysis to classify your inventory, you arrange your inventory by identifying your high-profit generating items, reviewing which items are slow-moving, and then establishing if you should even still stock these slow movers in your warehouse.
- Step one: Identify and remove your obsolete and non-stocked items.
- Step two: based on previous sales data and or your future forecast, breakdown your inventory into:
- A-items: profit-generating, high moving items (which make up 80% of sales)
- B-items: fast-moving inexpensive items (which make up 16% of sales)
- C-items: the bulk of your slow-moving items (which make up 4% of sales)
The ABC analysis will help you to:
- Focus on items that lower your working capital;
- Know what items to re-order and
- Reduce your obsolete stock.
How classifying your inventory can help boost sales.
Classifying your inventory is like having a roadmap for each inventory item, showing you where you need to focus your attention, your working capital, and where you can potentially make improvements to help manage your stock items.
Knowing your high moving items will help you to:
- Forecast more accurately based on the demand and ensure you don’t stock out of these items.
- Develop your relationship with suppliers to ensure your supply consistently arrives in full and on time and potentially ask for a new pricing model as you will be ordering in higher quantities of these items.
- Prevent stock-outs of these items so you can consistently deliver to your customers.
Knowing your slower-moving items, you can:
- Free up your time and resources to focus on more critical items or other aspects of your business.
- Create pricing campaigns to sell those items quicker. This will reduce the costs of storing, insuring, and marketing those items.
Reduce your inventory value with Netstock.
Select Hardware is a leading one-stop supplier of premium hardware, providing both trade and retailers with a choice of over 4000 competitively priced products and numerous market-leading brands. They are a perfect example of how classifying their inventory helped their team focus on the right inventory.
The Netstock classification matrix and policy parameters have completely changed the way we look at inventory. This has allowed us to focus on the inventory that is important to our business and ensures that we have our fast-moving items on the shelves at all times. We can also set stocking parameters on the slower movers, reducing stock and capital – Steve Killworth, Operations Director at Select Hardware.
Connect with one of our inventory experts to discuss how Netstock’s classification feature can enable you to identify the high-priority stock items that will drive sales in your business.