ABC Classes

Optimisation of logistics activities in warehouses can be achieved through a careful analysis of the rotation of goods. The  (raw materials, materials or finished goods) can be looked at from several perspectives by different departments of a company. And establishing the ABC classes is a process that contributes significantly to accelerating the pace of some of the activities carried out by warehouse workers.

What is the rotation of goods?

In logistics, the rotation of goods is an important KPI that is calculated based on the outgoing goods and the available stock remaining in a company’s warehouse. It is therefore a key indicator for companies offering warehousing services as part of their logistics solutions.

In general, the rotation of goods is approached from three main perspectives:

• financial,
• quantitative,
• logistical.

The first perspective is the one adopted by accounting departments that classify items according to the financial results of the rotation of goods. The financial analysis allows these departments to identify the goods whose sales generate the greatest amount of money.

The quantitative analysis of goods rotation involves tracking and recording the number of items (raw materials and materials, finished goods) received and delivered, and the data collected is of particular help to purchasing and logistics departments.

Rotation of goods in transport and warehouse logistics

Quantity plays an extremely important role in transport logistics. In order to practically choose the optimal transport options, the quantities to be transferred from one location to another are always taken into account. For this reason, for example, quantity is one of the key parameters of the load optimization algorithm in xTrack TMS.

Quantity is also essential in internal warehouse logistics, as it is one of the parameters tracked in WMS applications (including xTrack WMS). Quantity analysis contributes to the optimization of storage spaces, the dosing of human effort, the proper organization of warehousing activities, etc.

ABC Classes

The ABC analysis is a method of establishing classes whereby each stock-keeping unit (SKU) in storage is assigned a letter indicating the speed of the rotation of goods for that item.

There are several classes – the number varies from one company to another, depending on the chosen level of detail of the classes. The principle of classification is simple: the first class (class A) is the one that includes the most sold items (if we are talking about commercial transactions) or consumed items (if we are talking about production), and the last class is the one that includes the least wanted items.

From a logistics management point of view, in the xTrack WMS application, the rotation classes are defined according to the number of picking runs in the warehouse required to collect the items specified in the customer orders from the shelf. Here is an overview of these classes from a logistics perspective.

Class A

Items classified in category “A” are those for which the highest number of picking trips are made by workers in the warehouse. In other words, Class A products are those that appear most often in incoming orders and are therefore most frequently picked off the shelves. They represent about 20% of all types of items in stock.

Classifying products as Class A can also have a practical result in terms of identifying optimal storage locations in the warehouse for this type of items, which would allow a significant reduction in picking times: they may be stored in locations as close as possible to the warehouse exit, as the probability of them being found in an order is very high.

Class B

Class B is the one that includes items that are second in terms of picking frequency.  It is generally an intermediate class and comprises about 40% of the item types in the warehouse.

Class C

In very many warehouses, class C is considered to be the last in terms of picking frequency,  including the remaining 40% of the total types of items stored. Because such items are less in demand in orders, some companies choose not to place them in picking locations.

However, there are also cases where additional classes at opposite poles can be used: Class A+ and Class X.

Class A+

Class A+ is a special class with a higher frequency of picking than Class A and it refers a limited number of items (e.g. 15 types of items). In addition to the extremely high rotation of these kind of goods, Class A+ may also be temporary in nature, being introduced for a limited period of time. For example, Class A+ may include items offered free of charge, for the duration of a promotional campaign, to any customer purchasing a pre-determined number of other products.

Class X  

Class X (where ‘X’ means the last letter of the classification system adopted by each company) is the class of ‘carrion’ items, which are no longer saleable or which are ordered and therefore picked off the shelf much less frequently than other stored products. Their classification as X items results in their placement in more easily accessible locations (at the back or on the highest shelves) in the warehouse.

Benefits of using the ABC classification in xTrack WMS

xTrack WMS collects and stores all the data related to activities carried out in the warehouse, including picking. Regularly, at the end of a predefined period of time (usually one month), one of the application’s algorithms automatically determines the class for each type of item based either on the collected picking data or the data entered by warehouse operators.

When determining the class, the number of trips that workers make to collect each type of item is taken into account. If, for example, there are 70 pieces on a pallet and the order must contain 90 pieces, only one trip is made to the picking area for the worker to pick the other 20 pieces required. If the picking frequency of an item has been high in a month (the number of picking trips has exceeded the minimum limit set for Class A) and the item is in the top 20% of all frequently picked items, it is considered as belonging to Class A.

xTrack WMS allows centralised determination of the applicable ABC classes of items even if the products are in different warehouses belonging to the same company. In this way, the WMS users can quickly identify the hierarchy of the most wanted items for each of the warehouses in the network.  The same item can be placed in different classes based on the data collected for each warehouse, as there is no uniformity of regional preferences for certain products.

The ABC classification determines the strategic placement of items in the warehouse so that their picking is as quick as possible. This helps to streamline logistical flows and thus speed up the pace of order shipping. Not only that! The class setting via the application also ensures superior monitoring of the items’ stocks, and parameters such as critical stock and minimum stock can be introduced into the algorithms to indicate whether or not picking locations need to be replenished or new stock should be ordered from suppliers so as to avoid disruptions during the order delivery process.

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