Stock management: the ABC analysis (1)

  • Knowing how to make the most of our stock is a science. We are going to tell you what ABC analysis is and how it can take your stock management to another level.

  • Many times, as sellers, we focus excessively on the technical and tactical aspects of selling. We are interested in knowing everything about how to create an online store, design ads for Google Ads, set up acquisition campaigns, optimize SEO, logistics...

    All this is very important, of course; but be careful: we must not fall into the error of overlooking the performance and management of our stock. Often a good analysis based on an efficient methodology makes the difference between selling more or less and selling with profitability criteria.
  • What is stock management with ABC analysis?

  • Throughout this post we are going to focus on our stock, but for real. An analysis technique called ABC will help us. It consists of weighing our products based on their impact on sales. 

    The idea is that we will be able to qualify each of the items by giving them one of these 3 categories (A, B or C). The Pareto principle, which is so often applied to many things related to marketing, is very helpful in this regard. 

    In case you do not remember, I will refresh it for you right now. It says that 80% of profits are generated by 20% of the products you have on sale. With this as a reference, it is time to create an Excel file and assign one of these 3 letters:
  • A Products

  • These are those products that are really cool, those that you know your target audience is interested in above all others. According to Pareto, it is very likely that they generate 80% of the profit. 

    Within stock management, they should always be our top priority and the reference when implementing any strategy.
  • B Products

  • Not everything you sell can be the engine of business. But, even so, there are a number of items that still have a more or less significant sale level and an interesting profit.

    In aggregate, Class B products are usually estimated to produce 15% of the profit. 
  • C Products

  • Finally, we have the last category, those products that have a marginal sales level. They are in your inventory, but you know very well that it costs a lot to get them out of the warehouse. 

    Let me introduce you to the C class of your stock, the one that barely represents 5% of the global profits of your business.

    These 3 classes can fluctuate, especially in the case of B which, either because of actions we take proactively or because of issues such as seasonality, goes to A or even falls to C. Therefore, the analysis that is made initially must be updated and keep an eye on it.
  • Why do inventory management using ABC analysis?

  • One of the most difficult things as store managers -and here it does not matter online or retail- is to be able to strategically prioritize our stock.

    We are not going to tell you that this is a quick task and that it will be solved in a few minutes. Especially when you have a large catalog, you are going to have to spend a little time and "love" to this analysis. 
  • The good thing is that it is worth every second you invest in it because its impact is enormous on many levels. You are going to modify your way of buying to be more efficient, and you will set your pricing policy, communication, logistics and acquisition and loyalty based on it.

    When you lack an inventory management strategy, it is very easy to fall into a bad purchasing policy. Going to the market with the only argument of intuition or that you see the shelves only half full is a perfect way to make a mistake. On the contrary, with an ABC analysis, you will know exactly where it is worth investing and making a more accurate sales projection.

    After all, the key is to have a balance between the amount of products available for sale and the cost of having them in stock.

    If you load up the shelves with class C references, you are spending money in the form of cubic meters that you could either use to store class A and B products, or you could free up the space completely by not paying for that unused space.
  • If we add the help of the marketing strategy and creation of promotions to the prioritized purchase and intelligent use of logistics, we can create campaigns in which we prioritize the sale of class A products and push class B products to the top segment. 
  • The topic of inventory management and ABC analysis is so interesting that we will soon publish another post with specific strategies to it. Do not miss it out because this topic is especially interesting as Christmas campaign is around the corner.

  • Images| Unsplash.

Miguel Nicolás

Miguel Nicolás O'Shea is a life-long copywriter (more than 15 years working in agencies) and a specialist in Search Marketing (SEO and PPC). From now on, he will contribute with his online marketing experience to Oleoshop, publishing regularly.

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