Once Inventory Is Stratified as a, B, C, D, X and Y Items, the Classification Aids in Making Several Business Decisions. How Does Inventory Stratification Influence
Once inventory is stratified as A, B, C, D, X and Y items, the classification aids in making several business decisions. How does inventory stratification influence i. Supplier Management? ii. Inventory Management? iii. Customer Management? iv. Warehouse Management? v. Sales Management? vi. Pricing Management? vii. Marketing Management? viii. Reinvestment Decisions?
Creating shareholder value is the ultimate goal of all businesses, so all processes should be directly tied to it.(1) The wholesale distributor’s core business process framework is a collection of process groups called 7S - source, stock, sell, ship, supply chain planning, and support services. Linking these process groups to shareholder value are the process metrics – percentage of slow moving inventory; and the financial framework. This framework consists of the financial elements – inventory; the financial key performance indicators – GMROII; and the financial drivers – profitability.
Inventory stratification is a specific business process under the inventory management subgroup in the stock process of 7S. Like most processes there is a common, good, and best practice for inventory stratification. Inventory stratification which includes the GMROII (gross margin return on inventory investment) method of A, B, C, D, X and Y items is considered best practice. A, B, C, and D represent items in inventory ranked by percentage of profitability from higher profitability down to zero profitability respectively. X and Y represent items with zero inventories, X represents items with gross margin dollars and Y represents items without any gross margin dollars. GMROII focuses on the items profitability making it a financial driver and is considered best practice. However, for optimal inventory stratification solutions, the final rank should include a combination method of the GMROII method; sales volume method – representative of customer-centric
Creating shareholder value is the ultimate goal of all businesses, so all processes should be directly tied to it.(1) The wholesale distributor’s core business process framework is a collection of process groups called 7S - source, stock, sell, ship, supply chain planning, and support services. Linking these process groups to shareholder value are the process metrics – percentage of slow moving inventory; and the financial framework. This framework consists of the financial elements – inventory; the financial key performance indicators – GMROII; and the financial drivers – profitability.
Inventory stratification is a specific business process under the inventory management subgroup in the stock process of 7S. Like most processes there is a common, good, and best practice for inventory stratification. Inventory stratification which includes the GMROII (gross margin return on inventory investment) method of A, B, C, D, X and Y items is considered best practice. A, B, C, and D represent items in inventory ranked by percentage of profitability from higher profitability down to zero profitability respectively. X and Y represent items with zero inventories, X represents items with gross margin dollars and Y represents items without any gross margin dollars. GMROII focuses on the items profitability making it a financial driver and is considered best practice. However, for optimal inventory stratification solutions, the final rank should include a combination method of the GMROII method; sales volume method – representative of customer-centric