A-Items The "ABCDE's" of ERP Inventory Management

Posted by Gerry Poe


abc analysisHow do you know your "A" items using ABC Analysis?
You use the ABC Analysis reporting to print a list of stock items in descending order of usage (importance) value, based on the quantity of stock used over the last 12 months, for example.

The report indicates what your most to least used items are, enabling you to determine what quantities of selected stock items ABC classifications should be included in your inventory.

This technique is also known as Pareto Analysis (80/20 rule) where concentration on the A class (those 20% representing 80% of the value) items can achieve greater results from less effort. i.e.: Closer to the customer's buying habits and which sell most.

Classifications

  • When you tell your ERP software you want to use ABC analysis for each individual stock item, the software looks and tracks activities and automatically classifies them into their respective value-selections.
  • Once annual usage values have been established, your ERP classifies each stock item into one of four categories: A, B, C and D.
  • The breaks between the categories preferrably are definable options: Percentage breaks for ABC analysis in your ERP inventory setup options. The default A/B percentage break is 80 and the B/C percentage break is 95.

Example:

  • Based on these default selections, stock items are included in class A until the sum of items equals 80% of the annual usage value of your entire inventory.
  • Stock items are included in class B until the sum of class A and class B items equals 95% of the annual usage value.
  • All other stock items having a non-zero cost that do not fall into classes A and B are assigned to class C and any stock item that has not been used or sold in the last year (365 days) is assigned to class D.

SYSPRO ERP has a few other options and optional systems tro help these selections make more sense and help even further define value in your enterprise data. These systems are Inventory Forecasting (Pareto extended analysis and forecast management, Families and Groupings (combining dissimiliar products into manageable product sales-groups), and finally Optimization (making it all come together into a system of complete end-to-end materials management).

Download the SYSPRO Inventory Fact Sheet here:

Download  SYSPRO Inventory Fact Sheet

 

Here are important questions to ask before buying an ERP software solution:

Download White Paper: Questions to Ask  Before Buying ERP Software >

 

Tags: Inventory Management, Material Control, SYSPRO

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