There is a lot of business-specific flexibility in to how we recommend you set your Class Settings or Site Group Class Settings, but here are some basic guidelines to follow:
ABC Options
Number of ABC Classes - 3 or 4 is generally best, we like to start with 4.
# Months of Sales - Using the last 12 months of sales is useful to capture a full year of seasonality in an item's activity
# Months Forecast - Some organizations may wish to include 3-4 months of forecast to help capture seasonal items as they come into season somewhat more proactively rather than solely a historical view, but leaving this at 0 is often fine.
ABC Break Values
It is important to remember that these break points are not counting the number of parts (e.g. not your top 80% of parts), but the parts that make up the top 80% of whatever classing criteria you choose. For example, if you choose "Quantity Sold" as your criteria, the parts that make up 80% of your sales quantity will be A's. That might be 5 items out of 1000, or it might be 50 items out of 1000, the key is that it represents your items that bring you your 80% of sales.
Recommended starting points:
- A = 80%
- B = 95%
- C = 99%
- (and D is then automatically the last 1%)
Tweak these based on if some items subjectively seem to be too high/too low in terms of their classing position.
ABC Classing Criteria
- For Highly Service-Level Focused businesses: 100% Hits, or 100% quantity sold, or 50/50 Hits and Qty Sold.
- You always want to have some portion of your quantities (be it frequency-of-sale or quantity-of-sale) incorporated into classing, or you'll frequently have angry customers not able to get things they are asking for commonly or in large quantities, and your overall service level will suffer.
- If you do want to incorporate sales revenue, go up to 50% of a revenue balance, making sure to keep at least 50% total between hits and quantity sold.
XYZ Criteria
- We recommend using the "Usage Pattern" approach, is it is very easy to see and relate in the application
- Generally we do *not* recommend Coefficient of Variation (cv) as it ignores StockIQ's ability to forecast some items, even if they have a high CV, such as seasonal items.
Service Level Targets
These are pretty highly specific to your business, and provide the most useful "knobs" for adjusting your inventory level. If you find that generally inventory levels are too high for certain classes of items, adjust these numbers upwards, and vice versa if you are missing service level targets. Note that the effect on your inventory will be more immediate for A and B items since they are higher velocity, versus slower-moving C, D, and X items.
StockIQ's defaults are a reasonable starting point at:
- A = 99%
- B = 98%
- C = 95%
- D = 90%