ABC Sales Ranking
The ABC sales ranking function is now installed in ALL DBS systems!  This concept of inventory ranking is adopted from one of the industry’s leading experts in inventory management Eugene R. Roman, author of Reengineering the Distributor.   This ranking allows you to “at a glance” recognize a products contribution to sales and identify its relative importance from a stock level (and safety stock) perspective, or if it’s a product you should consider getting rid of, even at a discount!

This ranking program does not currently control your ROP’s or EOQ’s in any way, it simply assigns a letter to it showing its contribution to sales in relation to other products in inventory. However, in the new ROP/EOQ functionality, this ranking will influence the safety stock level, allowing a higher percentage of safety stock for ‘A’ items, than for ‘B’, etc.

Cost Pools 

First, all products are assigned to a cost-pool based on their costs (Corp Branch Cost is used) so that each product is ranked amongst products of comparable value.  Currently only Johnstone catalog products are ranked and the sales dollars associated with these products.  Excluded are discontinued products, non-catalog products, and products with less than 12 months sales history (which are denoted with “N” for new).

Cost Pool 1 = cost is less than or equal to $2.00

Cost Pool 2 = cost is greater than $2.00 but less than or equal to $4.00   

Cost Pool 3 = cost is greater than $4.00 but less than or equal to $8.00   

Cost Pool 4 = cost is greater than $8.00 but less than or equal to $16.00 

Cost Pool 5 = cost is greater than $16.00 but less than or equal to $32.00

Cost Pool 6 = cost is greater than $32.00 but less than or equal to $64.00

Cost Pool 7 = cost is greater than $64.00 but less than or equal to $128.00

Cost Pool 8 = cost is greater than $128.00     

Products grouped in cost-pools 2 thru 7, will be ranked by sales dollars (sales at cost) during the last 12 months in descending order. Products grouped in cost-pools 1 or 8 (first and last only) will be ranked by units sold (during the last 12 months in descending order) instead of total sales dollars, because of the disparity in costs that may exist between two products in these two pools.  For example, a product that cost $1.90 is 10 times the value of a 19¢ product, and a product with a cost of $1,700 is over 13 times the value of a product with a cost of $128. Therefore an equitable comparison of products based on cost in not possible in these two pools.

Ranking 

ABC ranking is applied independently to each cost pool.  Each product is ranked based upon its contribution/volume as a percentage of total revenue from products in that pool.

Premise: A minority of products in inventory represent the majority of total sales revenue generated from inventoried products. As a line item’s contribution to sales increases as a percentage of total sales within its pool, its ranking or priority amongst other line items within its pool shall increase.

40-50% of sales (from inventory) come from 5% of stocked products

20-30% of sales (from inventory) come from 10% of stocked products

20-30% of sales (from inventory) come from 25% of stocked products

 0 -10% of sales (from inventory) come from 60% of stocked products

The above premise illustrates a “measure of inventory performance” applied to all products in inventory, and is the basis for the ABC ranking methodology incorporated in the Database software. This premise has proven to be true with various Johnstone businesses.

Based on this premise, the ranking program works as follows:

A = the top 5% of products within each cost pool

B = the next 10% of products within each cost pool

C = the next 25% of products within each cost pool

D = the remaining 60% of products within each cost pool
N = the item is less than a year old and is not ranked as an “A” or “B” item

E = the item has been inactive for a set number of days.

To set the parameter for “E” items, go to menu 35.11, field 7, enter number of days that must elapse for an item to receive an “E” ranking. 
A list of E-items will print based on the following criteria:

1) On-hand quantity of 1 or more

2) No ROP

3) Product older than number of days set in parameter

4) Date of last activity (INQ. 7B), in any warehouse is older than number of days set for the “E” parameter, menu 35.11, field 7.

We strongly encourage all DBS Users to enable the product-ranking program by using Menu path 35.11.1 and entering “Y” for yes.  The ranking program will run automatically at the end of each week. 

After enabling the ranking program, you can test measure of your inventory by using Menu path 6.12.