Sage Inventory Advisor Basics

Classification

Classification is important because is difficult to view hundreds, or even thousands, of inventory items every day and make an informed decision on what to buy, what’s running short and what you have too much of.

By classifying your items, you are able to focus on the 20% of items that will give you 80% of your sales.

 

You can navigate to the Classification tab by:

  • Clicking on the Classification menu (green underline), which displays your default location
  • Using the drop down (green square) on the Classification menu and clicking on the required location
 

ABC – measured by Value

The ABC tab shows the result of the classification of items based on the value of their historical sales or future forecasts (depending on the classification parameters).

During classification:

  • Obsolete items are highlighted and segregated
  • Non-stocked items are highlighted and segregated
  • Remaining (stocked) items are flagged as either A, B or C based on value

For stocked items:

  • A category items typically represent the top 80%
  • B category items typically represent the next 16%
  • C category items represent the last 4%

Note: these percentages are set in classification parameters.

 
  • Stocked items will be ordered based on all future demand streams and the intent is to supply customers from available stock
  • Non-stocked items are only ever ordered when one of your customers orders it from you - they are typically slow movers that your customers can’t easily get elsewhere, and they are willing to wait for delivery
  • Obsolete items will never be ordered under any circumstances - you may still have stock of them, you can still sell them but you will never purchase them
 

High, Medium and Low (HML) – measured by Velocity

The HML tab shows the result of the classification of items based on units, either historical sales or future forecasts (depending on the classification parameters).

For stocked items:

  • H category items typically represent the top 80%
  • M category items typically represent next 16%
  • L category items represent the last 4%

Note: these percentages are set in classification parameters.

 

The Matrix

Once each stocked item has been categorised, plotting ABC and HML together results in the matrix.

Now you can see your inventory segmented by movement profile.

Note: In a classic ABC categorisation, items with high unit sales but that are inexpensive get lost in the C category. By combining ABC and HML, these items typically end up in the CH (C by value, High by unit movement) segment.

From the matrix it is very easy to view the sku count, stock on hand value, average cost of sales and fill rates (target and actual) in each intersection.

 

Now you can hone in on items displaying different characteristics and requiring different inventory stocking policy approaches, for example:

  • AH items: your most critical items as they are fast moving and high value, and make up the bulk of your sales
  • AL items: your expensive slow moving items, where over-stocking can be very expensive and the risk of obsolescence is high
  • CH items: these items move very quickly but are typically small and inexpensive, so we can buy bigger quantities without adding much to overall inventory value nor risking obsolescence
  • CL items: these items do not contribute much to the business and could be considered for de-ranging
 

By clicking on the Count, Value or Demand buttons to the right of the matrix, a 3D graphic appears highlighting the relative value in each block for the selected option.

  • Count: shows the number of items in each segment
  • Value: shows the stock value of each segment
  • Demand: shows the cost of sales in each segment
 

Parameters

There are three buttons under the classification results, namely:

  • Classification parameters: used to set the %’s for ABC & HML
  • Policy parameters: used to set inventory policy targets
  • Recalculate balance: used to apply any changes made to the classification or policy parameters
 

Classification parameters

The classification parameters define the rules that are to be applied during classification in the App.

Obsolete and Non-stocked items are identified in the ERP and flagged in the data interface. By checking Classify obsolete items and/or Classify non-stocked items, items provided in the data interface as stocked items are tested to see whether they should be classified as obsolete or non-stocked.

ABC items and HML velocity items may be classified by forecast or by sales history (the default is by forecast which caters better for growing or dying products). The percentages used to identify each categorisation are set here.

To apply any changes to the classification parameters to all items, click on Reclassify.

 

Policy parameters

Policy parameters enables setting of safety stock and replenishment (order) cycle days by ABC and the length of the lead time.

  • If you want to use the policy setting in all locations, simply click Set this policy for all locations
  • To apply the policy setting, simply click Apply policy
 

Recalculate balance

To recalculate the ABC, HML and Matrix balances based on any changes made to the Classification parameters or the Policy parameters, simply click Recalculate balance