Overview
ABC classification is a way to priorities items based on their importance to the business.
The ABC analysis structure is based on the following general principles:
• A = 80% of annual sales 20% of item numbers
• B = 15% of annual sales 30% of item numbers
• C = 5% of annual sales 50% of item numbers
ABC Analysis in AGR
Navigate to cogwheel > Settings > ABC
ABC Metrics
You can choose one or two metrics from the six different options AGR provides. By default the Cost of goods sold and Number of sale lines are chosen.
The ABC is calculated every night, the possible outcomes are: A, B, C, N, X
where the N represents New items, and X represents dead items (no sale past 12 months) these are inherently C-items that we have further classified for transparency and making phasing in and out easier.
By default Items with as little as one month of sales will be scaled to a 12 month period and receive an ABC accordingly.
If scaling new items to 12 month sales does not fit your business, scroll to the bottom of the ABC settings page and disable the scaling.
ABC groupings
AGR can calculate ABC values for items, grouped in different ways.
If no selection is made, the calculation will be made across all Open items.
If you have multiple locations, we recommend enabling location based ABC classification.
For those using the statistical safety stock, you may consider classifying ABC down to location and item groups, if that fits the safety stock confidence factor distribution.
ABC Analysis and Confidence Factors
In the ABC settings tab, you can decide which Confidence Factor is assigned to each of the ABC values. The Confidence Factor plays a key role in the calculation of safety stock, used in ordering.
In the Confidence Factor section of the ABC settings tab, you can see the default Confidence Factors AGR has set but you can override these here to suit your business requirements.
NOTE:
A Confidence Factor of 50 = item will have no safety stock calculated
A Confidence Factor between 50 - 99 = item will have safety stock calculated
Excluded Items from ABC Analysis
To ensure that appropriate safety stocks are calculated for New and Dead items, those items are categorized separately in the ABC analysis with a value of N (for New items) and X (for Dead items).
The default confidence factors for these items can be seen in the ABC settings tab. New and Dead items are described here:
NOTE:
Items with an ABC value of X that have BOM Consumption in the last 12 months are still considered Active Stock on the AGR Stock Health dashboard.
However, these items will continue to be shown with an ABC value of X as BOM Consumption is not an ABC metric.
Importance levels
As well as analyzing items according to their assigned ABC values, you can also use the Importance value assigned within AGR. These are seen in the Dashboard as well as columns and filters in Items, Reports and Plans and labels in the Item card.
The mapping of an ABC value to an Importance value of either High, Medium or Low is done in the ABC Settings in the Importance level grid. The mapping is not editable and can be seen here for a two-level ABC.
For a one-level ABC, the mapping is as follows:
Updating ABC Values
Any changes made in the ABC settings can be applied by clicking on the Run ABC button or if this is not selected, ABC values will be recalculated according to the settings changes during the next overnight job.
Viewing your ABC data in Items & Reports
In the Items and Reports modules, you can easily see the ABC values and Importance assigned to items by selecting the column ‘ABC’ in addition to the Importance and six specific ABC columns.
See the video
Summary of ABC classification
Category A
Items in this category are considered the most critical and valuable to the organization. They typically have a high value to the business whether e.g. in sales value or units, profit margin and other criteria. These items are typically a small percentage of the total inventory items but contribute a significant portion of the overall units or value. A common guideline is that category A items might represent around 20% of the items but contribute to 80% of the value or units.
Category B
Items in this category have moderate importance. They are less critical than category A items but still hold some significance. These items typically represent a moderate percentage of the inventory items and contribute to a moderate percentage of the value or units. A common guideline is that category B items might represent around 30% of the items but contribute to 15% of the value or units.
Category C
Items in this category have the lowest importance. They are often low-value or low-demand items that represent a large portion of the inventory items but contribute a relatively small percentage of the value or units. Category C items are typically abundant in quantity but have a lower contribution compared to categories A and B and might represent around 50% of the items but contribute to 5% of the value or units