About inventory ranking methods

Data gathered on various types of businesses shows that the 80-20 rule applies to most of them: 80% of the effect is generated by 20% of the cause.

Similar logic generally applies to inventory:

• A small number of items (which can be designated with the A code) typically accounts for the largest value of stock.
• A slightly larger number of items (B code items) accounts for a smaller yet significant stock value.
• The remaining large number of items (C code items) accounts for only a small part of stock value.

Stock value as count basis

Ranking items by stock values can be used as the basis for planning efficient physical inventories in which A items are counted more often than B items (which in turn are counted more often than C items).
This reduces the total number of stocktakings performed while maintaining more accurate inventory levels.

You define the ABC codes to be used for stock items by using the ABC codes (IN208500) window.
For each code, you specify the percentage threshold and the frequency of stocktaking per year.

Initially, you can manually assign ABC-codes to some items by using the General information tab of the Stock items (IN202500) window, and the items will have the same code assigned in every warehouse until the code assignment is updated for the first time.
You should only assign codes to items for which codes will be fixed (that is, not updated over time) and skip initial assignment for other items.

At the end of a financial period, you can use the Update ABC code (IN506000) window to mass-assign ABC-codes to items based on their stock-on-hand values.

For the selected warehouse and financial period, the system assigns pending ABC-codes as follows:

• The system arranges stock items in decreasing order, based on their percentages of total stock.
• For each item, a subtotal is calculated as the item's percentage plus the previous subtotal (the sum of percentages of previous items).
• These subtotals are compared to the thresholds specified for codes as follows:
  

Assignment continues in this fashion, and the subtotals for the C-code items should be greater than the sum of A, B thresholds and less than the sum of the A, B, and C thresholds.

You can view the list of the stock items with their current and pending ABC codes, and update the ABC-code assignments for all displayed items.

The ABC analysis gives you an immediate view of items that are expensive to stock.

Via this analysis, you can learn where your money is locked up and reduce the stock of expensive items.

When planning stocktaking counts, you can perform stocktakings for items with each code at the appropriate frequency for that code.

Items with fixed codes are part of the assignment, but their codes do not change in accordance with the statistical data.

As with ABC codes, movement classes group items based on key inventory data or in this case, turnover.
For each movement class, defined using the Movement classes (IN208600) window, you specify the frequency of stocktakings per year and the threshold value of criteria based on turnover to assign stock items to this class.

The number of turnover periods per year for all warehouses is specified (Turnover periods per year) on the General information tab of the Inventory preferences (IN101000) window.

You can initially assign items to movement classes using the Item warehouse details (IN204500) window; these items will have the same class in every warehouse until movement class assignments are updated for the first time.
You might instead initially assign only items to the classes, for which class assignment will be fixed, and skip assignment for other items.

You can update movement class assignments for a particular warehouse and a chosen turnover period using theUpdate movement class (IN506100) window.

The system assigns movement classes to items as follows:

• The system arranges stock items in decreasing order, based on their turnover rate.
• For each item, a subtotal is calculated as the item's turnover rate plus the previous subtotal (the sum of turnover rates of previous items).
• These partial sums are compared to the specified threshold for a class.
• All the items for which the accumulated values are less than the threshold for the first movement class, are assigned to this movement class.
• The items with accumulated percentages between the threshold for the first and second movement class will be assigned to the second class. Assignment continues in this fashion.

When planning stocktaking, you can organise it by the frequencies specified for movement classes.
Thus, you can perform stocktakings for items with higher turnover rates more frequently.
Items of each movement class will be counted at the frequency you have specified for the movement class.