We all know the importance of stock for business success. Although having the right quantity of the right product, at the right time, on the right shelf at the right price is more complicated. A method to simplify this is to categorise products by their frequency of sale i.e. A, B, C & D.
Your top sellers, which constitute a small number, are usually sold daily, these are “A” products, e.g. cement or blocks, “B” products sell weekly e.g. white spirits or dust bins. “C” products sell infrequently and “D” are in the departure lounge! How products rank will depend on the uniqueness of your shop and is best achieved by reviewing stock history, talk to your software supplier. Reviewing products on this basis, ensures slow moving products are removed thus leaving room for new products and you should always be in stock of your fast moving products. Integrity Software’s TRADER™ Builders Merchant EPOS system can be structured to give you this information.
The frequency of sale determines your actions with the product e.g. “A” products need to be merchandised on a daily basis, purchased on a weekly/fortnightly basis. “A” products are usually price sensitive and can also be a product starter e.g. reinforcing mesh. Being out of stock or out on price can mean losing a customer or a project, therefore ensure adequate stock is held and prices are checked with competitors on a regular basis.
The following matrix is typical of Builder’s Merchants and when the figures are examined, it is clear where cash is tied up and which products could be released without affecting customer service.
In the above example, “A” products make up .3% of the stock units (SKU), 9% of the stock value, 30% of sales & 21% of the total margin. In contrast “C” products make up 66% of the SKU, 55% of the stock value, 40% of sales & 50% of the total margin.
In simple terms sales come from “A’s” and margin from “C’s”. If cash is tight “C’s” can be reduced with a small impact on margin, as there is so many of them however if “A’s “were reduced it would have a big impact on sales, ultimately reducing the sale of “C’s”. In this case the stock holding of “A” should be increased to avoid stock outs and this could be financed by discounting and selling of “D” products.
In the above example, products sold most frequently are working too hard, however other products are warming shelves. Not all products are equal. The above categorisation helps management communicate with staff on the importance of some products over others. It would be a firing offence to be out of an “A” but it’s ok to wait until the end of the month to purchase a “C” product. It is easy to have too little stock of “A” products and too many of “C” & “D”.
In conclusion categorising products based on the frequency of sales, will Increase sales by reducing out-of- stocks, and working capital can be freed up by reducing the stock levels of “C” without hurting sales and finally de-clutter your shop by selling off problem products.
If you find yourself learning something from this then may need to consider optimising your processes. Get in touch with us to see if we can improve on what you have in place.
Trader is an easy to use electronic point of sale system designed for the unique requirements of building, plumbing and timber merchants, hardware and DIY stores in the UK and Ireland.
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