📈 ABC Category Classification
To help you determine the most effective purchasing strategy, Optiply automatically categorises all of your products into three specific groups: A, B, and C.
By assigning your inventory to these categories, you can easily set your desired service levels (delivery reliability) in your General Settings.
The categories are selected based on the available data from the past 365 days. The categories are updated every night, and immediately when you change the general settings of the categories.
🔠 1. What Do the Categories Mean?
Optiply categorises the products into three letters to determine your strategy for three product groups:
Category A: Fast-selling products, high return.
Category B: Middle category.
Category C: Low sales, low margin, new products.
🧮 2. The Default Method: Margin
By default, the products are classified based on the total margin in the past year. We rank the products based on the following:
Margin (YTD) = Number of times sold (YTD) x Margin
Note: The margin is determined based on the current purchase and sales price
How the Percentages Work (Image Explanation): The products with the highest margin in the past year that provide 70% of your total annual return will be classified in category A. The products with the lowest margin that provide the lowest 5% of your total return will be classified in category C.
Two Examples:
If you have a product that is sold frequently and has high margins, the product will be classified in category A.
If you have a product sold very little but with high margins, it will be classified in category C.
🔄 3. Alternative Calculation Methods
As shown in your ABC Classification settings, it is also possible to categorise products by the No. of sell order lines or by Revenue.
Note: If you need assistance switching between these methods to ensure it aligns with your strategy, let us know via chat or email at support@optiply.nl. We will aid you with this change.
Alternative A: No. of sell order lines
If you choose to classify your products based on the number of sell order lines, we will rank the products based on the following: Number of times sold (YTD)
Note: This is not the same as the total number of products sold. We look at the number of times a product returns on a sales order. Therefore, a sales order line of 20 pieces carries the same weight as a sales order line of 1 piece.
Recommendation: We recommend using this setting to optimise purchasing based on operational conditions, for example, because the warehouse is getting full or the number of orders is getting too large.
Alternative B: Revenue
If you choose to classify your products based on revenue, we will rank the products based on the following: Revenue (YTD) = Number of times sold (YTD) x Sales Price
Recommendation: We recommend using this setting when product purchase prices fluctuate enormously or have inconsistent availability. Or when you want to classify your stock based strictly on top-line financial performance.
🛡️ 4. Purchase Rule Option
In addition to the standard category determination, it is possible to set a purchasing rule. This ensures that products remain classified in the C category until they have a minimum number of sales rules.
If you want to use this, please let us know. We set this up for you.
Example: If you set a Sell Order Threshold of 5 and the desired service level for category C to 0, then a product with fewer than 5 sales lines will not be kept in stock.
❓ 5. Frequently Asked Questions (FAQs)
Can I manually divide products into categories?
No. It is not possible to manually divide products into categories. You can, however, adjust the margin (by changing the purchase or sales price) so that a product ends up in the desired category sooner or later.
How does a product move from Category C to Category B when the Purchase Rule is active?
When the purchase rule is in effect, a product must have sold enough and meet the other condition. Only when the product meets both rules can it become a B product.
How often does my ABC categorisation change?
The categories are selected based on the available data from the past 365 days. The system automatically recalculates and updates these categories every night, or immediately if you manually change the percentage settings in your ABC classification page.