How to perform an ABC inventory analysis

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An ABC inventory analysis classifies e-commerce products based on the sales volume and the profits they generate. It prioritises the company’s most critical products physically in stores, in online catalogues and in stock control systems. It makes managing best-selling products more agile and efficient. Combining a detailed inventory segmentation with an appropriate pricing strategy will contribute to the smooth running of the e-commerce business and sales optimisation. Below, we explain the benefits of ABC inventory analysis and how to start the process. 

Firstly, you should know that an ABC analysis of stock management relies on the 80/20 Rule or the Pareto Principle, whereby 20% of the products generate 80% of the profits. Therefore, inventory management must prioritise this 20% of items or services to increase profit. The ultimate goal is to have faster, more direct access to the products most requested by users.

Classification of e-commerce products according to the ABC method 

At the start of an ABC inventory analysis, each product type must be assigned a category, A, B, or C, based on certain criteria. The principal values considered when carrying out this classification are the unit price, the total value of the item, or its use. The letters A, B or C assigned to each product may be part of the SKUs or alphanumeric codes applied to different items for quick identification and location. You can also increase the number of letters if your catalogue is extensive. However, it is not advisable to have more than ten. 

What products are included in each category? 

  • Type A products: The best sellers and those that generate a higher volume of revenue to the brand or retailer. These critical products must be subject to strict stock control to ensure there is always enough to cover demand. This will help avoid a possible bullwhip effect that harms the end consumer. 
  • Type B products: Equally important but generate less revenue than A, either due to lower value or less significant level of sales. In these cases, monitoring is key to identifying if they need to switch categories. This group represents approximately 20-30% of the items in the store. 
  • Type C products: Their importance is lower than other items, so they will occupy a less accessible place physically and virtually. This category includes 50-60% of the products for sale.
Classification of e-commerce products according to the ABC method

Benefits of ABC Inventory Analysis 

  • Streamlines operational warehouse management, enabling users to receive their orders earlier. 
  • Allows better stock control, preventing stock shortages that can damage the brand image. 
  • Helps reduce costs by focusing the company’s efforts on the items that generate the greatest return on investment. 

Once you have categorised your stock properly, it’s also interesting to find out about the inventory of direct competitors. You can find out what products they sell and how they are sorted to detect any gaps in your own stock management. Competitor catalogue tracking tools provide access to any structured information that appears on other vendors’ portals, such as pricing, stock, brands, categories, SKUs, EANs codes, descriptions and more.

Maria Jose Guerrero
Content Manager
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