Delicious ABC Classification

Why is important:

Is your attention focused on the most valuable products (Category A)? The ones that contribute the most to your profits or sales? Do you manage relaxed the less critical items (Categories B and C)? ABC classification it’s like prioritizing your most important tasks to maximize impact!

---

Our offer:

Provide you a report with ABC classification and share possible insights regarding your products. You will have an opinion on:

• What are most valuable items 
• How can your inventory management & cash flow can be improved 
• What items could be removed from your future offer/assortment
• Where to keep an eye on "on shelf availability" to secure customer satisfaction

Depending on data available the value and quality of the insights can be fined tuned based on:

• Date of first sale of a product (exclude from analysis the new products)
• Date of last delivery or no-longer-active products (exclude from analysis obsolete products)

---

Do it yourself (simplified version) ⬇️⬇️⬇️

Preparation Time: 2–3 hours
Skill Level: Beginner-Friendly 

---

Ingredients:

1. Simple Inventory Data organized per columns with a clear axis of analysis in mind (eg: sales, quantity or profit)
2. Tools: Spreadsheet software (Excel/Google Sheets).
3. Skills: Basic understanding of percentages & familiarity with sorting and cumulative calculations.

---

Step 1: Gather and Prepare Your Ingredients

1. Collect your inventory data. Ensure your dataset includes:
   • A unique identifier for each inventory item (SKU code)
   • Total sales, quantity, profit or similar per a period of time (month or year); to our demonstration we will use a generic term of Total Value
     
   • Optional you may add: Date of first sale, Date of last delivery/purchase.
2. Ensure data is clean.
   • No duplicates;
   • Missing values are addressed.

---

Step 2: Arrange the Ingredients

Add to the table with these columns:

• • Percentage of Total Value (to be calculated).
  • Cumulative Percentage of Total Value (to be calculated).
  • Category (to be assigned).

---

Step 3: Cook Up the ABC Analysis

1. Sort the inventory. (Arrange items in descending order by their Total Value.)
2. Calculate field "Cumulative Percentage of Total Value" for each item. Formula for each item  = item Total Value / sum (all items Total Value) × 100.
3. Calculate field "Cumulative Percentage of Total Value"

• First item (top line) = Cumulative Percentage of Total Value for the item;
• For subsequent fields, add the percentage from each item in sequence: Cumulative Percentage (Row N) = Percentage of Total Value (Row N) + Cumulative Percentage of Total Value (Row N-1).

---

Step 4: Serve the ABC Categories

Classify your inventory into A, B, and C categories:

• Category A: Items contributing to the top 70% of total value.
• Category B: Items contributing the next 20%.
• Category C: Items contributing the final 10%.

Assign categories based on the Cumulative Percentage of Total Usage Value:

• • • Items with a cumulative percentage ≤ 80% → Category A.
    • Items with a cumulative percentage > 80% but ≤ 90% → Category B.
    • Items with a cumulative percentage > 90% → Category C.

Highlight the rows with different colors for each category (optional, for visual clarity).

---

Step 5: Taste Test (Review the Results)

1. Check the classification. Does it align with the typical Pareto Principle (80/20 rule)? Are there outliers or anomalies worth investigating?
2. Refine if necessary. Adjust thresholds if needed to suit specific business requirements.

---

Serving Suggestions

• Present results in a bar graph showing cumulative percentages or a pie chart showing category contributions.
• Use the analysis to prioritize inventory management efforts:
  • Focus on Category A for stock optimization.
  • Review reorder strategies for Category B.
  • Apply less stringent controls for Category C.

Bon appétit in data-driven decision-making!