Classification: a way to
categorize/group your products. There are a few
different ways to set up an ABC Ranking, such as Velocity (times sold),
Quantity sold/Consumed or by Margin. But the most
common method I have seen is the Annual Sales Volume ranking.
This method will allow you to identify the small amount of products that usually
account for most of your sales dollars (think 80/20 rule)
Here's one quick method for
determining your ABC ranking based on Annual Sales Volume:
the 12 month dollar usage for all
of your products (volume X cost).
2. Rank the items in descending order by the
3. The "A" items are the top
80% of the total annual usage
4. The "B" items make
up the next 15% of total annual
5 The "C" items are
the remaining items are the remaining 5% with >0 usage
in the past 12 months
zero-usage items can be labeled as "D".
You will also need to make a special
consideration for your newer products. If you don't have a full year of Sales
Volume to reference, you need to use a yearly forecast estimate instead.
There are also other
considerations, such as "critical items" that may have
low usage, but need
special monitoring because you can't run out of stock due to
a customer agreement. So
your definition of A items may need to be
Some companies use A, B, C, C-
A = 80%, B = 15%, C = 4%, C- = 1%