With increase in competition and customer demand, the product line has become infinite for Hypermarket retailers. Managing and analysing the SKUs (stock keeping Units / Items) have become a challenge. Few techniques can be used in analysis and classification of SKUs. We shall discuss the same in the below :
1. ABC Analysis
Methodology used in classifying the product range into 3 categories such as
- 'A' category products where tight inventory control is required because they contribute a lot to the profit of the organisation in terms of return on investment and sales. Regular perpetual inventory checks are required to ensure minimal shrinkage. Reordering points are frequently amended to match the market demand
- 'B' category products are the ones with good inventory control deployed but there is no need for regular perpetual inventory checks. They contribute a good value to your sales as well
- 'C' category products are the ones with less inventory control and contribute a low percentage to sales. Retailers usually keep them in the product line due to customer requests or for clearance
This methodology uses Pareto's principle where in 20 % of the inventory contributes to 80% of the total sales value. It is also known as the 80-20 rule
Please do not confuse ABC analysis with Activity Based Accounting. These are two different terms and have their own importance in operations.
2. HML Analysis
Its a simple way to classify the products based on the selling price of the product i.e. 'H'igh value , 'M'edium value and 'L'ow value products. It helps in understanding what percentage of these stocks are held by us
3. VED Analysis
These are 'V'ital, 'E'ssential and 'D'esirable products that has to be maintained in our inventory. This is used in the field of pharmacy where inventory is based on the criticality of the drug and in spare parts store where criticality is based on the parts that ware out more often and needed on immediate basis for replacements
4. FSN Analysis
This methodology is used to identify the product sales i.e. 'F'ast moving, 'S'low moving and 'N'on moving. Please do not confuse this with ABC analysis. FSN analysis is based on the quantity of inventory flow for that particular product, it doesn't not evaluate the contribution of the product to sales value. It evaluates the contribution of the product to the sales quantity. In case of manufacturing the classification is based on consumption of the product
5. SOS Analysis
This is a simple way to monitor the seasonal products through the year lying in our inventory. They shift between 'S'easonal and 'O'ff-'S'easonal based on the seasonality. This is done to ensure the product is purchased and sold before the season expires or to ensure enough stock is kept on hand to facilitate sales during the beginning of the season. This method is critical with respect to seasonal fruits and vegetables
6. SDE Analysis
Methodology used by retailers in procurement side of the business operations.
- 'S'carcely available products are the ones which are imported and are not available locally. The supply does not meet the demand and it is difficult to procure due to its short supply. Hence extra caution and monitoring is required by the buyers to get the products on hand from the manufacturers
- 'D'iffult to procure products are those manufactured domestically but difficult to procure due to distance from supplier/manufacturer, short supply or less number of suppliers available in the market
- 'E'asy to acquire products are the ones that are locally available in plenty and the supply meets the demand
7. GOLF Analysis
This is the hybrid of SDE analysis where in procurement of inventory is classified based on :
- 'G'overnment supplied inventory
- 'O'rdinary available products which has supply meeting the demand, the product is easy to procure and is available within the country
- 'L'ocally available products from local vendors, these are usually perishable products with short shelf life procured locally within the state/city limits
- 'F'oreign source is required for the supply of the product
1. ABC Analysis
Methodology used in classifying the product range into 3 categories such as
- 'A' category products where tight inventory control is required because they contribute a lot to the profit of the organisation in terms of return on investment and sales. Regular perpetual inventory checks are required to ensure minimal shrinkage. Reordering points are frequently amended to match the market demand
- 'B' category products are the ones with good inventory control deployed but there is no need for regular perpetual inventory checks. They contribute a good value to your sales as well
- 'C' category products are the ones with less inventory control and contribute a low percentage to sales. Retailers usually keep them in the product line due to customer requests or for clearance
This methodology uses Pareto's principle where in 20 % of the inventory contributes to 80% of the total sales value. It is also known as the 80-20 rule
Please do not confuse ABC analysis with Activity Based Accounting. These are two different terms and have their own importance in operations.
2. HML Analysis
Its a simple way to classify the products based on the selling price of the product i.e. 'H'igh value , 'M'edium value and 'L'ow value products. It helps in understanding what percentage of these stocks are held by us
3. VED Analysis
These are 'V'ital, 'E'ssential and 'D'esirable products that has to be maintained in our inventory. This is used in the field of pharmacy where inventory is based on the criticality of the drug and in spare parts store where criticality is based on the parts that ware out more often and needed on immediate basis for replacements
4. FSN Analysis
This methodology is used to identify the product sales i.e. 'F'ast moving, 'S'low moving and 'N'on moving. Please do not confuse this with ABC analysis. FSN analysis is based on the quantity of inventory flow for that particular product, it doesn't not evaluate the contribution of the product to sales value. It evaluates the contribution of the product to the sales quantity. In case of manufacturing the classification is based on consumption of the product
5. SOS Analysis
This is a simple way to monitor the seasonal products through the year lying in our inventory. They shift between 'S'easonal and 'O'ff-'S'easonal based on the seasonality. This is done to ensure the product is purchased and sold before the season expires or to ensure enough stock is kept on hand to facilitate sales during the beginning of the season. This method is critical with respect to seasonal fruits and vegetables
6. SDE Analysis
Methodology used by retailers in procurement side of the business operations.
- 'S'carcely available products are the ones which are imported and are not available locally. The supply does not meet the demand and it is difficult to procure due to its short supply. Hence extra caution and monitoring is required by the buyers to get the products on hand from the manufacturers
- 'D'iffult to procure products are those manufactured domestically but difficult to procure due to distance from supplier/manufacturer, short supply or less number of suppliers available in the market
- 'E'asy to acquire products are the ones that are locally available in plenty and the supply meets the demand
7. GOLF Analysis
This is the hybrid of SDE analysis where in procurement of inventory is classified based on :
- 'G'overnment supplied inventory
- 'O'rdinary available products which has supply meeting the demand, the product is easy to procure and is available within the country
- 'L'ocally available products from local vendors, these are usually perishable products with short shelf life procured locally within the state/city limits
- 'F'oreign source is required for the supply of the product
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