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by Shaz K

How do you categorize inventory items?

Tuesday 8, Sep 2020

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Categorizing inventory is different for every business, but it can be very important, especially if your business maintains a lot of stock. No matter how you decide to categorize your inventory, decide on a system that is sensible, scalable and reasonable. After all, what good is a standard operating procedure that no employee will follow?

How do you categorize inventory items?

You can categorize your inventory by dividing it into three groups based on profitability (ABC classification), or you can categorize it based on location, item type or other obvious commonality. However you categorize your inventory, ensure you select a method you can stick with as your business grows. 

ABC Classification of Inventory

ABC classification of inventory, also known as ABC analysis, is a relatively easy and extremely popular way of categorizing inventory. The method, which is a major part of inventory control, categorizes inventory based on how important and profitable each item is. 

Category A inventory adheres to the Pareto Principle. This principle states that 20% of your inventory should bring in about 70% of your profits. This inventory is your business’s most essential stock, and you should make maintaining and managing this inventory your top priority. 

Category B inventory is your second-most important inventory. This group should be about 30% of your inventory, and account for about a quarter of your profits. While this inventory is very important, it’s not nearly as essential as your Category A items. 

Category C inventory is the other half your stock, which accounts for just 5% of your profits. These items are still part of your business, but they’re not as critical as the more profitable half of your inventory.

Many businesses use ABC analysis to decide where to apply their most stringent inventory control strategies.

Categorizing Inventory by Location

Categorizing inventory by location is a simple, intuitive way to make sense of everything in your company’s inventory. 

To begin, make a list of where your inventory is stocked. Every supply closet, cabinet, storage unit, and even off-site area must be considered. As you conduct physical inventory, ensure you note exactly where each item is. You can do this using pen and paper, an inventory spreadsheet or inventory management software, like Sortly. (In Sortly, you can denote location via folder, tag, or field.)

Categorizing Inventory by Item Type

Categorizing inventory by item type is another easy, logical way to manage your inventory. That being said, if you stock items in a lot of different places, it can get very confusing. The best way to categorize items by inventory type is to review a master inventory list, then group items together logically. 

For example, a beauty salon may group all inventory into five categories: dyes and glosses, product for salon use, product for sale, cleaning supplies and tools. This is a simple, logical way to inventory–if you have only one salon!

Inventory management apps like Sortly can help you categorize inventory in different ways, so you can understand what you’ve got in stock globally vs. in one storage closet or one location.

Want to start categorizing your inventory intuitively, effectively and rapidly today? Start a free trial of Sortly and stop stressing over the small stuff. 

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