Completing the Analysis
To complete your inventory classification analysis, use the following steps:
Complete an Inventory Audit – This is essential because not only will you discover any obsolescent parts but also you will be able to have an accurate count of items on hand along with part numbers.
Calculate Quantity Used – Use your sales general ledger to reveal revenues for the prior year. For example, your sales ledger should show how many of each part you sold in the past year; in our example, the auto repair shop sold 100 units of oil.
Calculate Revenue Dollars – Again, your sales journal should be able to tell you the cost of each oil item and annual sales. In our example, 100 units of oil were sold at $10 per cost, so that's $1,000 in revenue for the year.
Annual Percentage Amount – Here, calculate each item on the list based on dollar value divided by total revenue sales for all items, or $1,000 of oil divided by $1,280 in total sales = 78%.
Sort the List – Here, based on dollar value volume, sort the list with the top seller at the top and the lowest seller at the bottom.
Cumulative Usage Percent – Once your list is sorted, the item cumulative percentages are calculated based on a running total of the addition of percentages (the spreadsheet download example does this automatically).
Class Your Inventory – When researching an example, I found some experts say classifications should be the largest selling inventory (or inventory that makes up 80 percent of your total sales) should be classified at A. Inventory that makes up 15 percent of your total sales should be classified as B and remaining inventory of 5 percent, classified as C. In the screenshot above, you can see we have:
Oil – Class A
Filters - Class B
Hoses – Class C