It’s important to categorise well, as it is the first level of inventory organisation. There are two ways to categorise, either by commodity (product) or accounting ‘needs’.
Commodity categorisation is usually the best: for example, Steel, Aluminium, Chemicals, Fasteners and so on. This allows you better reporting plus the ability to negotiate with and consolidate suppliers. Restrict to major commodities, 20 to 30 at most. Resist complexity and coded sub-categories. Good categorisation quickly shows where most of the company’s cash is going.
Accounting categorisation examples: Consumables, Projects, Freight and so on. We often find accounting and commodity categories mixed up in the same database. This leads to item schizophrenia – is a bolt a fastener or a consumable? What if a part is costed to a project today, but was issued as a consumable yesterday? Accounting categorisations are usually a hangover from older systems and practices, where workarounds were needed to satisfy Profit and Loss (P&L) requirements.
A better way of doing this in TidyStock, is to commodity categorise, and then book items such as Personal Protective Equipment, (PPE), fasteners, abrasives, chemicals etc to an internal overhead project named ‘Consumables’, ‘Workshop’ or similar. This retains full cost visibility of workshop consumption while simplifying the Xero P&L. For TidyStock, if consumable items are confined to one or a few commodity categories, they can be mapped to a consumables account.