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How do you monitor and update your ABC analysis results over time?

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ABC analysis is a method of inventory management that categorizes your products into three groups based on their value, demand, and turnover. A items are the most valuable and require the most attention, B items are moderately valuable and require less attention, and C items are the least valuable and require the least attention. By applying ABC analysis, you can optimize your inventory costs, improve your cash flow, and prioritize your customer service. But how do you monitor and update your ABC analysis results over time? Here are some tips to help you keep your ABC analysis relevant and effective.

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1 Review your ABC criteria

The first step to monitor and update your ABC analysis results is to review your ABC criteria regularly. Your ABC criteria are the factors that determine how you assign your products to each group. These factors may include sales volume, profit margin, annual consumption value, lead time, or customer preference. You should review your ABC criteria at least once a year, or more frequently if your market conditions, customer behavior, or product portfolio change significantly. By reviewing your ABC criteria, you can ensure that they reflect your current business goals and challenges, and that they capture the most important aspects of your inventory performance.

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Karl Davidson MBA

Four Block Graduate, Business Consultant, MBA Grad, and Doctoral Candidate
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1. Determine the criteria for categorizing items: The first step is to determine the criteria you will use to categorize your items. For example, you might categorize items based on their revenue, profit margin, or sales volume.

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David J (Joe) Armstrong

Principal, retired at Inventory Curve, LLC
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We had a practice where we reran the system generated ABC codes every quarter. Did we expect much change —?no, but it enabled us to see any obvious changes in the calculation and of course, the buyer/planners for the products reviewed and had the authority to change the code for any item. The goal was to use ABC codes as a segregation method for managing items, by importance, whatever the defining factor was, and the buyer/planners had good handle on this.

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2 Re-evaluate your inventory data

The second step to monitor and update your ABC analysis results is to re-evaluate your inventory data periodically. Your inventory data are the numbers that feed into your ABC criteria and help you rank your products. These numbers may include sales data, inventory levels, purchase orders, or stock movements. You should re-evaluate your inventory data at least quarterly, or more often if you have seasonal fluctuations, promotional campaigns, or new product launches. By re-evaluating your inventory data, you can update your ABC rankings and identify any changes in your product demand, profitability, or availability.

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Rick Mueller

Strategic and Consumer Focused Retail Executive
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Agree, blend strategy with quantitave data to establish the break points of A, B or C assortment, and if possible by order channel.

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Karl Davidson MBA

Four Block Graduate, Business Consultant, MBA Grad, and Doctoral Candidate
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For me, the second step 1. Determine the criteria for categorizing items: The first step is to determine the criteria you will use to categorize your items. For example, you might categorize items based on their revenue, profit margin, or sales volume.

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3 Adjust your inventory policies

The third step to monitor and update your ABC analysis results is to adjust your inventory policies accordingly. Your inventory policies are the rules and guidelines that govern how you manage your inventory for each group. These policies may include reorder points, reorder quantities, safety stocks, service levels, or replenishment frequencies. You should adjust your inventory policies whenever you notice a significant shift in your ABC rankings or results. By adjusting your inventory policies, you can align your inventory decisions with your ABC analysis and optimize your inventory efficiency, accuracy, and responsiveness.

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Karl Davidson MBA

Four Block Graduate, Business Consultant, MBA Grad, and Doctoral Candidate
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For me, the third step is to 3. Perform the initial ABC analysis: Once you have collected the data, perform the initial ABC analysis. This will help you categorize your items into A, B, and C categories.

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David J (Joe) Armstrong

Principal, retired at Inventory Curve, LLC
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As previously noted, we used ABC codes to help us manage different classes of items based on importance. One of the tools were good reports summarizing The inventory by ABC code summarized by number of items, usage, inventory value, turnover rates, customer service levels and sometimes GMROI. One observation I made over the years across almost all organizations I manager or reviewed led me to the conclusion: * A items tend to have the highest turnover rates and the most service problems. * C items have much lower turnover rates - excess inventory problems. * Improve service for A's by INCREASING inventory and reduce excess inventory for C's. * Because the number of A's is much lower than C's, overall service will improve and so turnover.

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4 Communicate your ABC results

The fourth step to monitor and update your ABC analysis results is to communicate your ABC results to your stakeholders. Your stakeholders are the people who are involved in or affected by your inventory management, such as your suppliers, customers, employees, or managers. You should communicate your ABC results regularly, clearly, and consistently. By communicating your ABC results, you can inform your stakeholders of your inventory performance, expectations, and challenges, and solicit their feedback, support, and collaboration.

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Karl Davidson MBA

Four Block Graduate, Business Consultant, MBA Grad, and Doctoral Candidate
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The fourth step is to 4. Set up a tracking system: To monitor and update your ABC analysis results over time, you need to set up a tracking system. This can be a spreadsheet or database that allows you to record changes in the values of your criteria over time.

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5 Track your ABC outcomes

The fifth step to monitor and update your ABC analysis results is to track your ABC outcomes over time. Your ABC outcomes are the measurable results that indicate the impact of your ABC analysis on your inventory management and your business performance. These results may include inventory costs, inventory turnover, cash flow, customer satisfaction, or sales growth. You should track your ABC outcomes using key performance indicators (KPIs), dashboards, or reports. By tracking your ABC outcomes, you can evaluate the effectiveness of your ABC analysis, identify areas for improvement, and celebrate your achievements.

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Karl Davidson MBA

Four Block Graduate, Business Consultant, MBA Grad, and Doctoral Candidate
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And the final, 5th step is 5. Regularly review and update your analysis: Set up a schedule to review and update your analysis regularly. This might be on a monthly, quarterly, or annual basis, depending on your needs. During each review, re-categorize your items based on the new values of your criteria and update your tracking system accordingly. By following these steps, you can monitor and update your ABC analysis results over time, allowing you to make informed decisions about the management of your inventory or other business operations.

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6 Learn from your ABC experience

The sixth and final step to monitor and update your ABC analysis results is to learn from your ABC experience and apply your learnings to future scenarios. Your ABC experience is the accumulated knowledge and insights that you gain from applying ABC analysis to your inventory management. You should learn from your ABC experience by conducting regular reviews, analyses, and feedback sessions. By learning from your ABC experience, you can refine your ABC skills, methods, and tools, and adapt them to changing situations and opportunities.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you monitor and update your ABC analysis results over time?

1

2

3

4

5

6

7

1 Review your ABC criteria

2 Re-evaluate your inventory data

3 Adjust your inventory policies

4 Communicate your ABC results

5 Track your ABC outcomes

6 Learn from your ABC experience

7 Here’s what else to consider

Inventory Management

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How do you monitor and update your ABC analysis results over time?

1

2

3

4

5

6

7

1 Review your ABC criteria

2 Re-evaluate your inventory data

3 Adjust your inventory policies

4 Communicate your ABC results

5 Track your ABC outcomes

6 Learn from your ABC experience

7 Here’s what else to consider

Inventory Management

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