1. Analysis for Inventory Control and Management
Great job in preparing and exploring the data! In this chapter, you will create some important metrics for your inventory analysis and introduce a classification technique known as ABC analysis.
2. Analysis workflow
You will focus on the analysis and visualization at this stage. You have already made a good start by creating basic calculations such as COGS, revenue, and profit, but you want to go deeper to get more insights for your final output.
3. Preliminary results
And you have also found some interesting insights.
The country that had the most customers who placed an order with Acropolis Retail was the United Kingdom.
There are 104 items within five categories, for which the decoration category has the highest average costs of goods sold of just under five thousand dollars.
Finally, home accessories had the largest profit in 2020, reaching up to $110,000.
4. Inventory analysis metrics
To further investigate the data, you will use more elaborate calculations and methods for inventory analysis. In this second part, you will deal with the average inventory value, inventory turnover, and ABC analysis.
5. Average inventory and turnover
The average value of inventory is a calculation that determines the value of a particular good or set of goods in a specific time period. It is calculated as the average total cost at the start and end of a particular period.
6. Average inventory and turnover
Inventory turnover is an efficiency ratio that shows how often a company uses its supply of goods during a given period. It can be calculated by dividing COGS by the average value of inventory. The ratio can be used to determine the performance of the inventory. Generally, a high inventory turnover value is good as it often indicates strong sales.
7. ABC analysis
ABC analysis is a technique that helps you prioritize inventory management by classifying your items into three categories: A, B, and C.
ABC analysis is similar to the Pareto principle - which states that 80% of consequences come from 20% of causes. There can be different thresholds for each class in ABC analysis. For this case study, we will use the 70%, 20%, and 10% thresholds to determine the quality and impact of products.
You can do ABC analysis in four steps. First, you need information on the revenue of your items; then, you calculate the percentage they represent from the total revenue. Once you have the percentages, you must compute a cumulative increase of those values. Finally, you classify the items according to a rule of how much they cover of the total revenue. A items will cover up to seventy percent of total revenue, B items will cover the following twenty percent, and C items will represent the remaining ten percent.
8. Let's practice!
Now that you have been introduced to some new analysis techniques, it is time to do more digging into your dataset and find more insights. Let's do it!